Quick answer: Self-employed individuals can deduct 100% of health insurance premiums paid for themselves, their spouse, and dependents directly from gross income on Form 1040 — no itemizing required. This "above-the-line" deduction reduces adjusted gross income (AGI), which can lower your overall tax bracket and affect other income-based thresholds. In a 32% bracket, a $20,000 family health insurance premium saves $6,400 in federal income tax.
Who Qualifies and How to Claim It
You qualify if you're a sole proprietor, partner in a partnership, or more-than-2% S-corp shareholder, and you paid health insurance premiums that aren't covered by a subsidized employer plan for either you or your spouse. For sole proprietors, the deduction is the lesser of the actual premium paid or net self-employment profit from the business the insurance is established under — you can't deduct more than you earned. For S-corp shareholders, the corporation must pay the premium and include it in W-2 wages — then you deduct it on Schedule 1, Line 17. This is the correct procedure; failing to run it through payroll first means you cannot claim the deduction.
What Types of Coverage Are Deductible
Qualifying premiums include medical, dental, and long-term care insurance (subject to age-based LTC limits). Medicare Part B, Part D, and Medicare supplement premiums count if you're on Medicare and otherwise qualify. The coverage must be in your name (or your business's name for S-corp). Coverage purchased through your spouse's employer plan does not qualify — if your spouse has group coverage available that would cover you at a subsidized rate, you cannot claim this deduction for that period. The deduction does not reduce self-employment tax — it only reduces income tax. To reduce SE tax as well, you need a different structure (like an S-corp) or an HRA.
The Long-Term Care Insurance Bonus for Business Owners
Self-employed individuals can also deduct long-term care insurance premiums subject to age-based IRS limits: under 41: $470; ages 41–50: $880; ages 51–60: $1,760; ages 61–70: $4,710; over 70: $5,880 (2024 figures). These caps apply per person, and spouses have separate limits. For a couple both age 62, combined deductible LTC premiums could be $9,420 annually. This makes LTC insurance particularly attractive for self-employed individuals in higher tax brackets — a portion of the premium effectively gets paid with pre-tax dollars. Consult a CPA to verify your eligibility and correctly calculate the deduction for your entity type.
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