Self-employed health insurance deduction for LLC owners and sole proprietors

If you buy your own health insurance and you run your business as a sole proprietor or an LLC, you can usually deduct the full cost of your premiums on your personal return without itemizing, but only if your business made a profit and neither you nor your spouse, nor a dependent or child under 27 whose coverage you include, could have joined a subsidized employer health plan during the months you want to claim.

The self-employed health insurance deduction is an above-the-line deduction under section 162(l) of the Internal Revenue Code that you report on Schedule 1 of Form 1040, using Form 7206 or, in ordinary cases, the worksheet in the Form 1040 instructions. It covers premiums for medical, dental, and vision insurance and for qualified long-term care insurance, for you, your spouse, your dependents, and your children who are under 27 at the end of the year. The deduction cannot be more than the net profit from the business under which the plan is established, it is allowed only for months in which you were not eligible for a subsidized employer plan through your own job or your spouse's, and it reduces your income tax without reducing your self-employment tax. S corporation owners who hold more than 2% of the company follow a different path to the same deduction, which we cover separately in our guide to health insurance for S-corp owners.

The deduction is available to owners who report a profit

The deduction is available to sole proprietors who report income on Schedule C, to owners of single-member LLCs that are taxed as disregarded entities, to partners and members of multi-member LLCs taxed as partnerships, and to shareholders who own more than 2% of an S corporation. It is not available to ordinary employees, and it is not available when your business has no profit, because the amount you can deduct is capped at what the business earned.

The deduction is taken on your personal return rather than on the business return, which is why it appears on Schedule 1 and not on Schedule C. A sole proprietor can have the policy in the business's name or in their own name. Because it is an adjustment to income, you receive it whether you take the standard deduction or itemize, which is the main reason it is more valuable than treating premiums as a medical expense on Schedule A, where only costs above 7.5% of adjusted gross income count.

Which premiums qualify

Premiums for medical, dental, and vision insurance qualify, along with premiums for qualified long-term care insurance, subject to a cap that depends on age. For 2026 the long-term care limits, set in Revenue Procedure 2025-32, are $500 for people age 40 or younger, $930 for ages 41 to 50, $1,860 for ages 51 to 60, $4,960 for ages 61 to 70, and $6,200 for those over 70, applied separately to each insured person.

Medicare premiums that you voluntarily pay to get coverage similar to private health insurance can qualify too, including Part B, Part D, Medicare Advantage, and Medigap, and being on Medicare does not by itself disqualify you. You can include premiums for your spouse, your dependents, and any child who is under 27 at the end of the year even if that child is not your dependent.

Several things do not qualify, even though they feel related. Out-of-pocket costs such as copays and deductibles are not premiums, so they are not part of this deduction and can only be deducted on Schedule A if they exceed 7.5% of your adjusted gross income. Contributions to a health savings account have their own deduction on Form 8889, so they should not be counted here as well.

The two limits that most often reduce the deduction

Two limits decide how much of your premium you can actually deduct, and both catch owners who assume the deduction is automatic.

The net profit limit. The deduction cannot exceed the net profit from the business under which the insurance plan is established. To find that limit, the Form 7206 instructions start with your net profit from Schedule C or your share of partnership income and subtract the deductible half of your self-employment tax and any deduction you take for retirement plan contributions you make for yourself. A business that loses money produces no deduction at all, and a business with a small profit produces a small one, with the unused premium falling back to Schedule A, where it is deductible only above 7.5% of adjusted gross income. If you own more than one business, the plan has to be tied to a specific business, and the limit is applied to that business.

The employer plan eligibility test. You cannot take the deduction for any month in which you were eligible to participate in a health plan subsidized by an employer, whether your own employer's or your spouse's. The test is about eligibility and not enrollment, so a spouse whose employer offers a subsidized family plan that you decline in favor of your own policy makes those months ineligible. The IRS applies the same rule to a dependent or a child under 27 whose coverage you are including, if their employer offers them a subsidized plan. The test runs month by month, and being eligible at any time during a month rules that month out, so if your spouse changes jobs and loses access to a subsidized plan, the deduction opens up again for the months in which no subsidized plan was available. A plan is subsidized when the employer pays part of the cost, so an employer plan that the employee pays for in full does not disqualify you. The test is also applied separately to long-term care coverage, since a spouse's plan might cover medical costs but not long-term care.

A worked example shows how the limits apply

Take a sole proprietor with $60,000 of net profit on Schedule C who pays $9,600 a year, or $800 a month, for a family medical plan, and whose spouse has no access to employer coverage. Half of self-employment tax on $60,000 is about $4,239, so the net profit limit is $60,000 minus $4,239, or $55,761, which is well above the premiums, and the full $9,600 is deductible. Depending on the owner's tax bracket, that deduction saves roughly $1,150 at the 12% bracket and about $2,100 at the 22% bracket.

Now change one fact. If the spouse becomes eligible for a subsidized employer plan on July 1, the six months from July through December are no longer eligible, and the deduction covers only January through June, or $4,800. The rest of the premiums are not lost entirely, but they can be deducted only on Schedule A and only to the extent they, together with other medical costs, exceed 7.5% of adjusted gross income.

Change a different fact instead. If the business earned only $8,000 of net profit, half of self-employment tax is about $565, and the limit is $7,435, so only $7,435 of the $9,600 in premiums is deductible above the line. The profit limit is the reason owners in a slow year are often surprised to find that the deduction is smaller than their premiums.

Marketplace coverage and the premium tax credit

If you buy coverage through the health insurance Marketplace and receive advance payments of the premium tax credit, the deduction is reduced by the amount of credit you claim, and the credit itself depends on your income after the deduction. That circular relationship is why the IRS provides worksheets in Publication 974 for owners in this situation, and why tax software or a preparer is worth using. If your coverage is subsidized through the Marketplace, work out the deduction and the credit together rather than taking either at face value.

Partners and LLC members have an extra step

If your LLC is taxed as a partnership, the deduction depends on the partnership being treated as having established the plan. The usual way is for the partnership to pay the premiums or reimburse you for them and report the amount as a guaranteed payment on your Schedule K-1, which you include in income and then deduct on your own return. If you pay for the policy in your own name, the partnership has to reimburse you and report the amount as a guaranteed payment, and you also need net earnings from self-employment reported on your K-1, in box 14 with code A. An LLC member who pays for personal coverage without involving the partnership in the books may have no deduction to claim, so the steps need to be set up before the year ends rather than discovered at filing time. A single-member LLC taxed as a disregarded entity is treated like a sole proprietorship and has none of this complexity.

How to claim it on your return

In ordinary cases you can calculate the deduction with the self-employed health insurance worksheet in the Form 1040 instructions, and the IRS requires Form 7206 if you have more than one source of self-employment income, file Form 2555, or include long-term care premiums. Either way, the instructions have you leave out premiums for months you were eligible for a subsidized employer plan, apply the profit limit, and report the result on Schedule 1 of Form 1040, line 17 on the 2025 form. The IRS's 2026 Form 7206 instructions were still marked as a draft in November 2026, so use the final 2026 form and instructions when you file. It does not go on Schedule C, which is a common mistake, because a premium treated as a business expense reduces your self-employment tax in a way the law does not allow for this deduction. The IRS instructions are explicit that the deduction cannot be subtracted when figuring net earnings from self-employment.

The deduction also reduces your qualified business income, which slightly lowers the QBI deduction, so owners using both should calculate them together. Our guide to the QBI deduction explains that interaction. Retirement contributions interact in the other direction, because they reduce the net profit that limits this deduction, which is covered in our comparison of a solo 401(k) and a SEP IRA.

Getting the bookkeeping right

The most common bookkeeping mistake with this deduction is recording the premium as a business expense when it is paid from the business account. For a sole proprietor or single-member LLC owner, premiums for personal health insurance are an owner's draw, not a Schedule C expense, even when the payment leaves the business bank account, and the deduction is taken later on the personal return. Recording them as an expense understates profit, understates self-employment tax, and makes the net profit limit on the deduction wrong. Our guides to recording owner's draws and to the difference between draws, distributions, and dividends explain the entries.

The cleanest approach is to pay premiums from a personal account or code them to owner's draws, and to keep the monthly statements so that you can show the amounts, the covered people, and the months of coverage for the deduction calculation.

Where Inkle fits

Inkle's bookkeepers code owner health premiums to the right equity account, so they do not distort your Schedule C profit, and our tax team prepares your Form 1040, including this deduction, and the partnership or S corporation returns where the deduction starts on a different form. Inkle handles bookkeeping and tax for owner-operated businesses across the US.

See how it works or book a demo to talk through what your business needs.

Frequently asked questions

Is the self-employed health insurance deduction an above-the-line deduction?

Yes. You report it on Schedule 1 of Form 1040, using Form 7206 or, in ordinary cases, the worksheet in the Form 1040 instructions, so you can claim it whether you take the standard deduction or itemize. It is not a Schedule C business expense.

Can I take the deduction if my spouse has an employer health plan?

Only for months in which your spouse was not eligible for a subsidized plan through their employer. The test is based on eligibility rather than enrollment, and a plan that the employee pays for in full does not disqualify you.

Does the self-employed health insurance deduction reduce self-employment tax?

No. It reduces your income tax only. Self-employment tax is calculated on your net profit before the deduction, and the deduction cannot be subtracted when figuring that tax.

What if my business lost money or made a small profit?

The deduction is limited to the net profit from the business under which the plan is established, after subtracting half of your self-employment tax and any retirement plan deduction. A business with a loss produces no deduction, and a small profit produces a small one. Premiums that you cannot deduct this way may still be deductible on Schedule A if your total medical costs exceed 7.5% of your adjusted gross income.

Do health savings account contributions count toward this deduction?

No. Contributions to a health savings account are deducted separately on Form 8889 and do not count as premiums on Form 7206. You can usually claim both if you qualify for each.

How does this work for S-corp owners?

An S corporation that pays or reimburses premiums for an owner with more than 2% of the stock includes them in the owner's W-2 wages, and the owner then claims the deduction on Form 7206. The deduction is limited to the owner's W-2 wages from the company, which our guide to the 2% shareholder rule explains in detail.