What health insurance premiums you can deduct

You can deduct health insurance premiums on your federal tax return, but only if you are self-employed or pay premiums for a spouse and dependents while self-employed. If you work for an employer, your premiums are usually deducted before your paycheck reaches you — you do not deduct them again on your return. If you are unemployed and buy insurance through the marketplace, you cannot deduct the premiums themselves, though you may receive a tax credit that reduces what you owe.

The rules differ based on how you earn income. A freelancer, contractor, or business owner can deduct premiums paid for themselves and their family members. An employee whose employer withholds premiums from their salary has already received the tax benefit and cannot claim it twice. Someone receiving unemployment benefits can claim a credit (not a deduction) for marketplace insurance purchased during that time.

Deductible premiums include health, dental, and vision coverage. They do not include premiums for life insurance, disability insurance, or long-term care insurance, even if bundled with health coverage. You deduct only the portion that covers health and vision.

Key Takeaways

  • Self-employed people deduct health insurance premiums on Schedule C or Schedule SE as a business expense, reducing the income subject to self-employment tax.
  • Employees cannot deduct premiums their employer withholds, because the tax benefit is already applied before their paycheck is calculated.
  • People who buy marketplace insurance while unemployed may claim the Premium Tax Credit instead of a deduction, which is often more valuable.
  • You must have net self-employment income at least equal to the premiums you claim, or your deduction is limited to that income.

How self-employed people claim the deduction

If you are self-employed, you deduct health insurance premiums on Schedule C (if you file as a sole proprietor) or Schedule SE (if you file as a partnership or S corporation). The deduction appears on line 29 of Schedule C under "Other Expenses," or on the equivalent line for your business structure. You do not itemize — you claim it whether you take the standard deduction or itemize deductions.

The premiums must be for coverage you purchased in your own name or for your spouse and dependents. They cannot be for employees' health insurance (that is a separate business deduction). The coverage must be active during the tax year you claim the deduction.

Your deduction cannot exceed your net self-employment income for the year. If you earned $30,000 in net self-employment income and paid $8,000 in premiums, you deduct the full $8,000. If you earned $5,000 and paid $8,000 in premiums, you can deduct only $5,000. Any excess carries forward to the next year.

Marketplace insurance and the Premium Tax Credit

If you bought health insurance through the Healthcare.gov marketplace or your state's marketplace while unemployed or between jobs, you do not deduct the premiums. Instead, you may claim the Premium Tax Credit on Form 8962, which reduces your tax bill dollar-for-dollar. This credit is often more valuable than a deduction because it applies directly to what you owe, rather than reducing your taxable income.

When you enroll in marketplace coverage, you estimate your household income for the year. The marketplace calculates a credit based on that estimate and may pay part of your premium directly to the insurance company. When you file your tax return, you reconcile what you received against what you actually earned. If you earned less than you estimated, you may receive a refund of the excess credit. If you earned more, you may owe some back.

You report the amount of credit you received during the year on Form 8962. The IRS compares it to your actual income and adjusts your refund or balance owed accordingly. You do not claim both the Premium Tax Credit and the self-employed health insurance deduction in the same year for the same coverage.

Employee health insurance and employer withholding

If your employer deducts health insurance premiums from your paycheck before calculating your federal income tax, you have already received the tax benefit. You cannot deduct those premiums again on your return. Your employer withholds premiums on a pre-tax basis, meaning they reduce your taxable wages.

Some employers offer a Health Savings Account (HSA) or Flexible Spending Account (FSA), which allow you to set aside pre-tax money for medical expenses. Contributions to these accounts are not deducted on your tax return — they are deducted from your paycheck before taxes are calculated, similar to health insurance premiums.

If you paid premiums out of pocket for coverage your employer did not provide, you cannot deduct them unless you are also self-employed. For example, if you work part-time for an employer and also freelance, you can deduct premiums paid for self-employed coverage, but not premiums for coverage through your part-time job.

COBRA and continuation coverage

If you left a job and continued your employer's health coverage through COBRA (Consolidated Omnibus Budget Reconciliation Act), the premiums you paid are not deductible unless you are self-employed. COBRA is a continuation of your former employer's plan, so it is treated the same way as active employee coverage.

However, if you are self-employed and pay COBRA premiums to maintain coverage while building your business, you can deduct them as self-employed health insurance. You must have net self-employment income to support the deduction, and the coverage must be in your name or cover your spouse and dependents.

What records you need to keep

Keep receipts or statements from your health insurance provider showing the premiums you paid during the tax year. If you paid monthly, your annual statement or a summary of all 12 months' payments is sufficient. If you paid quarterly or annually, keep the payment confirmation.

For self-employed deductions, also keep records showing your net self-employment income for the year — your Schedule C or business tax return. If your deduction was limited because your income was lower than your premiums, you will need to show that calculation if the IRS questions it.

If you claimed the Premium Tax Credit for marketplace insurance, keep your Form 1095-B (Health Insurance: Individual Coverage) and Form 1095-A (Health Insurance Marketplace Statement), which your insurance company and the marketplace send by January 31. These forms show what coverage you had and what credit you received.

When you cannot deduct premiums

You cannot deduct health insurance premiums if you are an employee and your employer withheld them. You cannot deduct premiums for coverage you did not actually purchase or use during the tax year. You cannot deduct premiums for family members who are not your spouse or dependents, even if you paid for their coverage.

You cannot deduct premiums that exceed your net self-employment income in the year you claim them (though the excess may carry forward). You cannot deduct premiums for life insurance, disability insurance, or long-term care insurance, even if they are bundled with health coverage — only the health portion is deductible.

If you claimed the Premium Tax Credit for the same coverage, you cannot also deduct the premiums. The credit and the deduction are two different tax benefits for two different situations, and you use one or the other, not both.

Frequently Asked Questions

Can I deduct health insurance premiums if I am unemployed?

No, you cannot deduct them. However, if you bought coverage through the Healthcare.gov marketplace while unemployed, you may claim the Premium Tax Credit on Form 8962, which is often more valuable than a deduction. The credit reduces your tax bill directly based on your actual income for the year.

What if I am self-employed and my spouse works for an employer?

You can deduct premiums for health insurance you purchase in your own name as a self-employed person. If your spouse's employer offers coverage and withholds premiums from their paycheck, those premiums are not deductible — the tax benefit is already applied. If you purchase a separate family plan that covers both of you, you deduct the full amount on your self-employment return.

Can I deduct premiums I paid for my adult child?

Only if your adult child is your dependent for tax purposes. You must claim them as a dependent on your return, which generally means they earned less than the annual dependent income limit and you provided more than half their financial support. If they meet the dependent test, premiums you paid for their coverage are deductible if you are self-employed.

Do I deduct health insurance premiums on Schedule A or Schedule C?

Self-employed people deduct them on Schedule C (or the equivalent for your business structure), not on Schedule A. This deduction is a business expense, not an itemized deduction. You claim it whether you take the standard deduction or itemize.

What if my employer offers a Health Savings Account?

Contributions to an HSA are deducted from your paycheck before taxes are calculated, so you do not deduct them again on your return. The same applies to a Flexible Spending Account (FSA). These accounts are separate from health insurance premiums and are already tax-advantaged at the payroll level.