Eligibility for the deduction
You generally need income from a business that established the health insurance plan. The requirements depend on how the business is taxed.
| Business type | General requirement |
|---|---|
| Sole proprietor or farmer | Have net profit reported on Schedule C or Schedule F, with the policy in your name or the business’s name |
| Partner | Have the partnership pay or reimburse the premiums and report them as guaranteed payments on Schedule K-1 when required |
| More-than-2% S-corporation shareholder | Have the S corporation pay or reimburse the premiums and include them as wages in box 1 of Form W-2 |
Source: Internal Revenue Service (1,2)
How much you can deduct
Your deduction is generally limited to the earned income from the business that established the health plan. For sole proprietors, this limit may be reduced by certain adjustments, including:
- The deductible portion of self-employment tax
- Certain self-employed retirement plan contributions
For example:
- If you paid $9,000 in eligible premiums and your business income limit was $46,000, you may be able to deduct the full $9,000.
- If your business income limit was $6,000, your deduction would generally be capped at $6,000.
The employer-plan eligibility test
Eligibility is determined month by month. You can’t deduct premiums for any month when:
- You were eligible for a subsidized employer health plan
- Your spouse, dependent, or child under age 27 could cover you through a subsidized employer plan
This restriction applies even if you chose not to enroll in the available plan.
How to claim the deduction
To claim the deduction:
- Report it on Schedule 1 (Form 1040).
- Use the worksheet in the Form 1040 instructions if it applies to your situation.
- Complete Form 7206 if required, such as when you have multiple sources of self-employment income, file Form 2555, or include qualified long-term care premiums.
If you received a Premium Tax Credit (PTC) for Marketplace coverage, follow the special rules in IRS Publication 974 to coordinate the credit and deduction.
Note: The deduction may lower your federal income tax, but it doesn’t reduce your self-employment tax.
