If you’re self-employed, one of the most significant tax benefits available to you is the ability to deduct medical insurance premiums. Unlike W-2 employees who typically receive employer-sponsored health coverage, self-employed individuals often bear the full cost of their health insurance. Fortunately, the IRS offers a specific provision that allows eligible self-employed taxpayers to deduct their health insurance premiums “above the line,” which directly reduces adjusted gross income (AGI) and can lead to substantial tax savings. In this detailed 2025 guide, we’ll explore who qualifies, what’s deductible, and how to properly claim the deduction on your federal tax return.
What Is the Self-Employed Health Insurance Deduction?
The self-employed health insurance deduction allows qualifying individuals to deduct the premiums they pay for medical, dental, and long-term care insurance. This deduction is an “above-the-line” adjustment, meaning you don’t need to itemize to claim it. It lowers your AGI, which can increase your eligibility for other deductions and tax credits.
The deduction is available on IRS Form 1040, Schedule 1, and directly reduces your taxable income, providing a benefit even if you take the standard deduction.
Who Qualifies as Self-Employed?
You qualify for the deduction if you meet any of the following conditions:
- You operate a business as a sole proprietor, independent contractor, freelancer, or gig worker and report income on Schedule C.
- You are a partner in a partnership and report income on Schedule K-1 and Form 1065.
- You are a shareholder in an S corporation owning more than 2% of the company’s stock and receive wages reported on Form W-2.
In all cases, you must have a net profit for the year, as the deduction cannot exceed the earned income you report from your self-employment activities.
What Insurance Premiums Can You Deduct?
The IRS allows you to deduct premiums paid for the following types of coverage:
- Medical insurance
- Dental insurance
- Vision insurance
- Long-term care insurance (subject to annual limits based on age)
You can also deduct premiums paid for coverage for:
- Yourself
- Your spouse
- Your dependents
- Your children under age 27 at the end of the tax year, even if they are not your dependents
Limitations on the Deduction
While this deduction is valuable, it does come with several restrictions:
- If you are eligible to participate in an employer-sponsored health plan (such as through your spouse’s employer), you cannot take the deduction—even if you choose not to enroll.
- The deduction cannot exceed the net income you earn from your self-employed business. If your business operated at a loss, the deduction is not allowed.
- Premiums paid with pre-tax dollars (such as through an HRA or cafeteria plan) are not deductible again.
These limitations apply on a monthly basis. If you were eligible for employer-sponsored coverage for just part of the year, you can still deduct premiums for the months you were not eligible.
Annual Deduction Limits for Long-Term Care Insurance (2025)
For long-term care insurance premiums, the IRS sets annual age-based limits that determine how much of the premium can be deducted. For the 2025 tax year, the limits are as follows:
- Age 40 or under: $470
- Age 41 to 50: $880
- Age 51 to 60: $1,770
- Age 61 to 70: $4,720
- Age 71 or older: $5,960
These limits apply per person covered by the policy and are subject to annual inflation adjustments by the IRS.
How to Claim the Deduction
To claim the self-employed health insurance deduction in 2025, follow these steps:
- Determine the total premiums you paid for medical, dental, vision, and long-term care insurance.
- Ensure none of the premiums were reimbursed or paid with pre-tax dollars.
- Verify that you were not eligible for any employer-sponsored plan during the months you paid premiums.
- Enter the deductible amount on Schedule 1 (Form 1040), Line 17 as an adjustment to income.
You do not need to itemize deductions to claim this. However, if you have additional unreimbursed medical expenses beyond your premiums, you may still choose to itemize those on Schedule A.
What Records Should You Keep?
To support your deduction in case of an IRS audit, be sure to keep:
- Proof of insurance coverage (policy documents)
- Invoices or monthly premium statements
- Bank or credit card records showing payment
- Documentation of your business income (Schedule C, K-1, or Form 1120S)
- Proof that you were not eligible for any employer-sponsored plan
It’s also helpful to maintain a monthly eligibility log if you or your spouse had fluctuating access to employer health plans during the year.
Self-Employed Health Insurance vs. Itemized Deduction
The self-employed health insurance deduction is superior to the Schedule A medical expense deduction in many cases because:
- It reduces AGI directly, improving eligibility for other deductions and credits
- You can claim it even if you don’t itemize your deductions
- It is not subject to the 7.5% AGI floor that applies to medical expenses on Schedule A
If you have other medical expenses (co-pays, prescriptions, dental procedures, etc.), you can still claim those on Schedule A, provided your total exceeds 7.5% of AGI and you choose to itemize.
What About S Corporation Shareholders?
Owners of S corporations who hold more than 2% of the company’s stock can also deduct their health insurance premiums. However, there are extra steps involved:
- The corporation must pay the premiums or reimburse the shareholder directly.
- The amount must be reported as wages on the shareholder’s Form W-2.
- The shareholder can then deduct the premiums on Form 1040, Schedule 1.
This process ensures the premiums are properly included in income before being deducted.
Conclusion
If you’re self-employed, the IRS offers a valuable opportunity to reduce your taxable income by allowing a deduction for health insurance premiums paid for yourself and your family. This above-the-line deduction can significantly lower your AGI, opening the door to more credits and deductions. To take full advantage of this benefit in 2025, keep meticulous records, understand your eligibility status each month, and be sure to avoid double-dipping with pre-tax premiums or employer-sponsored plans.
As always, consult a qualified tax professional to ensure you’re maximizing your deductions while staying in compliance with IRS regulations. The self-employed health insurance deduction is one of the few remaining tax benefits that directly rewards entrepreneurs for protecting their health and the health of their families.
