Self-Employed Health Insurance Deduction: Who Qualifies, Limits, and the Marketplace

If you’re self-employed and pay for your own health insurance, you can generally deduct the premiums for yourself, your spouse, your dependents, and a child under 27. The deduction comes off your income before AGI, so you don’t need to itemize. There are three main limits, per the Form 7206 instructions:

• It’s lost for any month you (or your spouse) were eligible for a subsidized employer plan.
• It can’t exceed your net profit from the business, minus related deductions.
• If your coverage comes from the Marketplace with a premium tax credit, the credit and the deduction have to be figured together.

Who can take it

You can use the deduction if one of these applies to you, per the Form 7206 instructions:

• You’re self-employed and had a net profit on Schedule C or Schedule F.
• You’re a partner with net earnings from self-employment.
• You used one of the optional methods to figure net earnings on Schedule SE.
• You’re a more-than-2% S corporation shareholder with wages from that S corporation, under separate rules.

The plan must be established under your business. For a sole proprietor, that’s easy: the Form 7206 instructions say the policy can be in the business’s name or in your own.

What premiums count

• Medical, dental and vision insurance for you, your spouse and your dependents.
• Coverage for your child who was under 27 at the end of the year, even if the child isn’t your dependent.
• Medicare premiums you voluntarily pay for coverage in your name that’s similar to private health insurance.
• Qualified long-term care insurance, but only up to an age-based limit per person. For 2026, those limits are, per Rev. Proc. 2025-32:

The month-by-month employer plan rule

This rule trips up a lot of freelancers with a working spouse. You can’t take the deduction for any month you were eligible to participate in a subsidized health plan offered by your employer or your spouse’s employer. The same goes for a plan from the employer of your dependent or your under-27 child. It applies even if you didn’t enroll. Eligibility alone is enough. The test runs month by month, so a change mid-year only affects the months it covers.

Say your spouse’s employer offered subsidized family coverage until your spouse left that job on June 30, 2026. You kept paying $600 a month for your own individual policy all year.

Only the July–December premiums, 6 × $600 = $3,600, go toward the deduction. The January–June premiums can still count as medical expenses on Schedule A if you itemize.

The net-profit limit

The deduction can’t be more than the earned income from the business under which the plan is established. On Form 7206, that’s your net profit minus the business’s share of the deductible half of self-employment tax, minus any SEP, SIMPLE or qualified plan contributions you made for yourself through that business. With a loss or a very small profit, this is what limits you.

For example, with $5,000 of net profit, self-employment tax is $707 and half of it is $354. The limit is $5,000 − $354 = $4,646. If your premiums were $7,200, only $4,646 is deductible here. The rest can go to Schedule A as a medical expense if you itemize.

What the deduction does, and doesn’t, reduce

• It reduces income tax. It’s claimed on Schedule 1 (Form 1040), line 17, and lowers your AGI.
• It does not reduce self-employment tax. The Form 7206 instructions are explicit on this.
• It slightly reduces your QBI deduction, because the Form 8995 instructions count it as an item that lowers qualified business income. See The QBI Deduction Explained.

Worked example: a single freelancer paying $600 a month

You’re single with $60,000 of net profit, no employer plan available to you in any month, and you pay $7,200 in premiums for 2026 ($600 × 12). You take the standard deduction.

A $7,200 deduction saves $691 here, not $7,200 × 12% = $864. The reason is that the deduction also lowers QBI, which trims the QBI deduction by $1,440 ($7,932 → $6,492).

If your plan comes from the Marketplace

When your policy is a Marketplace plan and you get the premium tax credit (PTC), the two benefits depend on each other. The deduction lowers your household income, which can raise the credit. The credit reduces what you actually paid, which limits the deduction. Publication 974 handles this with two optional methods, a Simplified Calculation Method and an Iterative Calculation Method. It also allows any other method, as long as your deduction plus the PTC (figured with the deduction taken into account) doesn’t exceed the premiums for the plan. In plain terms: you can’t deduct the part of your premium the credit paid for. Tax software normally does this for you.

Two changes for 2026 matter here, per the 2026 Form 1040-ES. We cover both in detail, with a worked example, in ACA Marketplace Health Insurance for Freelancers in 2026:

• If your household income is more than 400% of the federal poverty line, you’re no longer eligible for the premium tax credit.
• There’s no longer a limit on how much excess advance credit you have to pay back, at any income level.

For freelancers whose income is hard to predict, that second change is significant. If your income ends up higher than you told the Marketplace, you repay the full excess advance credit when you file. Updating your Marketplace estimate during the year matters more now than it used to. Once any credit is accounted for, the self-employed health insurance deduction covers the premiums you actually bear.

Bottom line

If you pay for your own coverage and have a business profit, this is one of the most valuable deductions available to you. It covers medical, dental, vision and (within limits) long-term care and Medicare premiums, and you don’t need to itemize. If your plan is an HDHP (bronze Marketplace plans now count), pair it with an HSA for your out-of-pocket costs. Check two things before claiming it: whether you or your spouse could have joined a subsidized employer plan in any month, and whether a Marketplace credit is in the picture. It won’t lower your self-employment tax, but it does reduce the income tax you set aside and prepay each quarter.