The self-employed health insurance deduction
If you're self-employed and show a profit, you can usually deduct health, dental and qualifying long-term care premiums for yourself, your spouse and dependents. You can't if you could have joined a subsidized employer plan. It lowers income tax, not self-employment tax. S-Corp owners report it through W-2 wages.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- Covers. You, your spouse, dependents and children under 27
- Limit. Can't exceed your net business profit
- Not if. Not if eligible for a subsidized employer plan
Who qualifies?
You can use this deduction if you're a sole proprietor, a partner, an LLC owner, or an S-Corp shareholder with more than 2%, and your business made a profit.
You can't take it for any month you were eligible to join a subsidized health plan through an employer, including your spouse's. This applies even if you didn't enroll. So if your spouse's job offers family coverage, look at each month separately.
How much can you deduct?
All your eligible premiums, up to your net profit from the business. If you've got $9,000 of premiums and $6,000 of profit, the deduction is $6,000. The excess might count as an itemized medical expense. Premium tax credits from the marketplace interact with this deduction, so that calculation can be circular. Tax software handles it.
| What's covered | Deductible? |
|---|---|
| Health insurance premiums | Yes |
| Dental and vision | Yes |
| Medicare premiums | Generally yes |
| Qualified long-term care | Yes, with age-based limits |
| Copays and prescriptions | No, those are medical expenses |
Where does it go on your return?
On Schedule 1 of Form 1040, as an adjustment to income. It doesn't go on Schedule C, so it won't lower your self-employment tax. It does lower your income tax, even if you take the standard deduction.
How do S-Corp owners handle it?
This trips up plenty of people. If you own more than 2% of an S-Corp, the company should pay or reimburse the premiums, and they go on your W-2 in Box 1, but not in Boxes 3 and 5. Then you take the deduction on your personal return. If you pay personally and nothing shows on the W-2, you can lose it. Sort it out before year end, through payroll.
What other options are there?
An HSA paired with a qualifying high-deductible plan adds another deduction. Small employers with staff might look at an individual coverage arrangement. Both have rules of their own, so bring them to a planning review.
Sources
- IRS: Instructions for Form 7206
- IRS: Guide to business expense resources
- IRS: S corporation compensation and medical insurance issues
General information, not tax advice for your situation.
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See our tax planning and CFO serviceCan I deduct health insurance if I have an LLC?
Yes, if you meet the rules, your business made a profit, and you weren't eligible for a subsidized employer plan.
Does the deduction lower self-employment tax?
No. It lowers income tax only.
Can I deduct marketplace premiums?
Yes, generally. Your premium tax credit has to be accounted for, and only the part you actually pay counts.
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