Self-Employed Health Insurance Deduction: What you Should Know

Many people qualify for the self-employed health insurance deduction and don't even know it. If you are self-employed and pay out of pocket for medical costs, you can apply the self-employed health insurance deduction quote to your taxes and save every year.

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Chris Tepedino is a feature writer that has written extensively about home, life, and car insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, researching investigative pieces, and crafting detailed, data-driven features. His works have been featured on CB Blog Nation, Flow Words, Healing Law, WIBW Kansas, and C...

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Dec 9, 2021

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The Rundown

  • The self-employed can save on their taxes each year
  • If you pay out of pocket for medical costs, you can deduct them
  • Medical deductions extend to some small businesses

Are health insurance premiums tax-deductible for the self-employed? You can get a self-employed health insurance deduction on your premiums each year. If you don’t have self-employed health insurance, you can likely get a policy today.

While you’re researching self-employed health insurance, enter your ZIP code to see what you could pay for tax-deductible health insurance premiums.

Is health insurance tax deductible for the self-employed?

A quality health insurance policy is a great way to ensure the protection of your health.

Is health insurance premium deductible? You can deduct your health insurance premiums if you’re self-employed, whether the insurance is through you or your employer. Any premiums you pay on the following are deductible at the end of the year.

  • Yourself
  • Spouse
  • Dependent children
  • Non-dependent children under age 27

If you or anyone in your immediate family paid for premiums with your money, you can claim these costs. Other medical services are considered tax-deductible as well.

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Who is considered self-employed?

According to the Internal Revenue Service, self-employed individuals are any of the following:

  • You carry trade as a sole proprietor or independent contractor
  • You are in a partnership that has a trade
  • In business where you are the sole income earner

If you carry the primary responsibility of decisions for yourself as a professional, you count as self-employed. Some examples of specific self-employed professionals can include freelance writers, graphic designers, developers, and more.

When are you eligible for tax-deductible premiums?

With health insurance likely being one of your most significant expenses, you’ll want to put that cost to good use during tax time. You can apply the write-off for months when neither you nor your spouse was eligible for other health plans.

If your only option is to pay out of pocket for health insurance, you will be able to deduct most of your insurance costs from your income taxes.

What is the earned income limitation?

It wouldn’t make sense you to deduct more from your taxes than you made as a self-employed individual. Therefore, you can only apply deductions equal to the amount of income you earned from your business.

If your self-employment income resulted in a tax loss that year, you wouldn’t be allowed to claim the deduction due to the negative impact.

Who isn’t eligible for self-employed tax deductions?

As previously mentioned, if your income has resulted in a tax loss, you can’t deduct any health insurance costs. You also won’t be allowed to deduct any health insurance costs if you’re eligible for another health insurance plan, for example, if your spouse’s employer has a group plan.

Can I qualify for the premium deduction and a premium tax credit through the Affordable Care Act?

Since 2014, the Affordable Care Act (ACA) has given many self-employed individuals help to pay for health insurance.

The ACA provides a tax credit for anyone near or below the poverty level, letting the insured apply that to the premiums they pay each month. Instead of using the credit, you can apply that credit to your taxes at the end of the year.

You can still claim deductions for many medical costs as a self-employed individual. However, you should also know how the ACA tax credit can also help you save on your taxes each year.

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Can I file health insurance costs paid for by my employees?

While the name might be a little misleading, self-employed individuals can deduct health insurance costs for employees as well.

For instance, if your small business has employees and you (as their employer) pay some of their medical insurance premiums, you can deduct the amount on your tax form for your employee benefit expenses.

How do you file a tax-deductible health insurance plan?

To get your paperwork completed and filed, you can:

  • Do it yourself — consider purchasing a tax software program
  • Consult with business partners
  • Hire a tax agent to help you

You can hire a tax preparer to help you. Look for someone who is familiar with self-employment laws. They can work as your self-employed health insurance guide at tax time and help you keep track of your costs and deductions.

What medical payments are tax deductible?

Using the IRS as a primary source, several medical expenses are tax-deductible. A few of the tax-deductible medical expenditures include:

  • Co-pays to doctors, dentists, psychiatrists, and other specialists
  • Payment for in-patient hospital care or nursing home care
  • Acupuncture treatment costs
  • Weight-loss programs for specific diseases
  • Payment for transportation to and from medical visits

The IRS wants to make sure that any necessary treatments are tax-deductible so you don’t have to bear the total cost of something you can’t avoid. You can also get a deduction for traveling to your doctor visit.

Self-Employed Tax Deduction: The Bottom Line

There are many ways  the self-employed health insurance deduction can be applied on your business income taxes. To help the self-employed, the IRS has made it easier to claim those deductions as a necessary business cost.

Enter your ZIP code into our free quote tool to see what you could pay for a self-employed health insurance plan.

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