COBRA premiums are not tax-deductible for most people who pay them out of pocket

If you are paying COBRA premiums yourself — meaning your former employer is not covering them — you cannot deduct those payments on your federal tax return. The IRS treats health insurance premiums paid by an individual as a personal expense, not a business one, even when COBRA is your only option after losing employer coverage.

The one exception is if you are self-employed. Self-employed people can deduct health insurance premiums, including COBRA, as a business expense on Schedule C or Schedule SE, provided the policy is in your name and you have no other health coverage available through a spouse's employer or your own business.

If your former employer continues to pay part or all of your COBRA premium as part of a severance agreement, that portion is taxable income to you — you will see it reported on a 1099 or W-2, depending on how it is structured. You still cannot deduct it.

Key Takeaways

  • COBRA premiums you pay out of pocket are not deductible on your personal tax return, even though they are health insurance costs.
  • Self-employed people can deduct COBRA premiums as a business expense if the policy is in their own name and they have no other coverage available.
  • If your former employer pays your COBRA premium as part of severance, that amount is taxable income and appears on your tax forms.
  • The standard deduction covers most taxpayers, so even if you could deduct medical expenses, you would need very high costs to benefit from itemizing.

Why the IRS does not treat COBRA as deductible

The IRS distinguishes between health insurance premiums paid by an employer and those paid by an individual. When your employer pays the premium, it is a business expense for them and does not count as taxable income to you. When you pay it yourself after leaving the job, the IRS classifies it as a personal expense — the same category as groceries or car insurance.

This rule applies even though COBRA is a federal law that requires employers to offer continuation coverage. The fact that you are legally may have access to to the coverage does not change its tax treatment. You are paying for your own health insurance out of personal funds, which is not deductible.

Self-employed people and COBRA deductions

If you are self-employed — meaning you run your own business and file Schedule C — you can deduct health insurance premiums, including COBRA, as a business expense. This applies to premiums you pay for yourself, your spouse, and your dependents, as long as the policy is in your name or your spouse's name.

The catch is that you must have no other health coverage available. If your spouse has access to employer coverage, you cannot deduct your own COBRA premium. If you have a business with employees and offer them health insurance, you also cannot deduct your own premium using this rule — you would need to cover yourself through the business plan instead.

Self-employed people report this deduction on Form 1040, line 21, not on Schedule C itself. You do not need to itemize deductions to claim it; it reduces your adjusted gross income (AGI) directly.

When a former employer pays your COBRA premium

Some employers include COBRA premium payments in severance packages or offer to pay the premium for a set period after you leave. If your former employer pays any part of your COBRA premium, that amount is taxable income to you. It will appear on your final W-2 or on a 1099 form, depending on whether you are still technically an employee during the COBRA period.

You cannot deduct this income on the other side — you cannot claim it as a medical expense. The employer gets a business deduction for paying it, but you receive it as income. This is true even if the employer is paying the full premium.

Medical expense deductions and COBRA

You might wonder whether COBRA premiums count toward the medical expense deduction, which allows you to deduct medical costs that exceed 7.5 percent of your adjusted gross income. COBRA premiums do not may have access to for this deduction either. Only certain out-of-pocket medical costs — copays, deductibles, prescription drugs, dental work, vision care, and similar expenses — count toward the 7.5 percent threshold.

Most taxpayers do not itemize deductions at all. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. Unless your total itemized deductions (medical expenses plus state and local taxes, mortgage interest, and charitable donations) exceed the standard deduction, you receive no tax benefit from tracking medical costs.

COBRA and the Affordable Care Act marketplace

COBRA is often more expensive than buying insurance through the Affordable Care Act marketplace, especially if you have a low income. Marketplace plans may may have access to you for premium tax credits, which reduce what you pay each month. These credits are not the same as a deduction — they lower your actual premium, not just your taxable income.

If you choose the marketplace instead of COBRA, you report the tax credits you received on Form 8962 when you file your taxes. COBRA has no equivalent benefit. This is one reason to compare the two options before deciding which route to take after losing employer coverage.

State-level tax treatment of COBRA

A few states have their own rules about health insurance deductions, but most follow the federal standard: COBRA premiums are not deductible for individuals. Some states do allow self-employed people to deduct health insurance premiums, mirroring the federal rule. Check your state's tax guidance or speak with a tax professional if you live in a state with an income tax and are self-employed.

States do not offer tax credits for COBRA premiums the way the federal government does for marketplace plans. If you are considering COBRA versus a marketplace plan, the tax treatment is one factor, but the actual monthly cost and coverage are usually more important.

Frequently Asked Questions

Can I deduct COBRA premiums if I am unemployed?

No. Unemployment does not change the tax treatment of COBRA. Premiums you pay out of pocket remain a personal expense. If you are self-employed, the self-employed health insurance deduction still applies. If you are unemployed and not self-employed, you cannot deduct COBRA premiums.

What if my employer paid COBRA premiums as part of a settlement or severance?

That amount is taxable income to you and will appear on your tax forms. You cannot deduct it. However, you also do not pay payroll taxes (Social Security and Medicare) on severance payments in most cases, which provides some offset.

Is COBRA different from regular health insurance for tax purposes?

No. COBRA is a continuation of your former employer's plan, but once you are paying the premium yourself, the IRS treats it the same as any other individual health insurance policy — not deductible. The only exception remains self-employment.

Should I choose COBRA or a marketplace plan based on taxes?

Tax treatment should not be your main factor. Marketplace plans may offer premium tax credits that lower your actual cost, while COBRA offers no tax benefit. Compare the monthly premiums, deductibles, and networks of both options first, then consider taxes as a secondary factor.

Do I report COBRA premiums anywhere on my tax return?

Unless you are self-employed, no. You do not report COBRA premiums on your return. If your employer paid part of the premium, it appears on your W-2 or 1099 as income, but you do not deduct it separately.