If you run your own business, health insurance is more than just a line item—it’s one of the few tax-deductible expenses that can provide real personal value. The self-employed health insurance deduction allows eligible business owners to deduct premiums paid for themselves, their spouses, and dependents. It's a simple but powerful way to reduce taxable income while ensuring comprehensive coverage for your household. Here’s how it works and what you need to know to use it correctly.
What Is the Self-Employed Health Insurance Deduction?
The self-employed health insurance deduction is an adjustment to income (not an itemized deduction) that lets eligible business owners write off the premiums they pay for medical, dental, and qualified long-term care insurance. Unlike other medical expenses, which must exceed a percentage of your AGI to qualify, this deduction is dollar-for-dollar—up to the total income you earned through self-employment.
Who Qualifies?
To be eligible, you must meet these criteria:
- Have net self-employment income (reported on Schedule C, F, or through an S corporation)
- Not be eligible for employer-subsidized health insurance (either through your job or your spouse’s)
- Be paying for a qualified insurance plan in your name or your business’s name
S corporation owners who own more than 2% of the business can still qualify—but the premiums must be included in their W-2 income and deducted accordingly.
Why This Strategy Matters for Business Owners
1. Tax Savings You Can Feel
Every dollar you spend on eligible premiums reduces your adjusted gross income (AGI). That can lower your overall tax rate and increase your eligibility for other deductions or tax credits. For high-income earners, this could translate to thousands in savings annually.
2. Personal Coverage That’s Fully Deductible
Unlike most business deductions, this one benefits you directly. You’re not just covering business costs—you’re covering yourself and your family, and writing it off as a business expense.
3. Simple Setup, High Value
You don’t need to establish a group health plan or create complex reimbursement structures. If you meet the IRS’s eligibility requirements, you can take the deduction on your personal return without setting up a formal health plan for employees.
How to Make It Work for You
Structure Your Business Correctly
The rules vary slightly for sole proprietors, partnerships, and S corps. Make sure your business structure aligns with the way you plan to deduct the expense. If you’re a 2% S corp shareholder, be sure premiums are properly included in your W-2.
Keep Clean Documentation
Retain detailed records of premiums paid, policy documents, and how they were paid (personally or through your business). This becomes especially important during tax season or in the event of an audit.
Coordinate with Other Tax Strategies
This deduction often works in tandem with other strategies, like HSAs or Section 125 plans. A CPA can help you build a broader plan that minimizes total tax liability across your business and personal return.
The self-employed health insurance deduction is one of the most overlooked tools for lowering your personal and business tax burden. It’s straightforward, valuable, and applies to a wide range of business structures. With the right guidance, you can make sure your insurance dollars go further—both in terms of coverage and tax strategy.
Want to reduce your taxable income and get more value from your healthcare premiums?
Schedule a consultation with Nth Degree CPAs today.
