Self-Employed Health Insurance Deduction: Not on Schedule C

Is my health insurance a business expense on Schedule C?

No. A sole proprietor (including a freelancer, 1099 contractor or side-business owner), or the owner of a single-member LLC that files Schedule C, does not deduct their own health insurance on Schedule C. The Schedule C instructions say not to include on line 14 contributions you made on your own behalf to an accident and health plan. The premiums go on Schedule 1 (Form 1040), line 17, as the self-employed health insurance deduction, which the same instructions say you can take even if you do not itemize. If your preparer says your own premiums are not a Schedule C expense, this is the rule that statement refers to. Whether your return was prepared correctly depends on what it claimed.

Two limits come with it. The deduction cannot exceed the net profit of the business the plan is set up under, less the deductible part of self-employment tax and any self-employed retirement plan deduction for that business. It also leaves out every month you could have joined a plan subsidized by your own employer or your spouse's employer, with a similar rule for the employer of a covered child or dependent (Form 7206 instructions).

A case is not simple if:

• The business had a loss or a small profit for the year.
• You could have joined a plan subsidized by your own or your spouse's employer, or by the employer of a covered child or dependent, for any part of the year.
• You bought Marketplace coverage and received the premium tax credit.
• Earlier books or returns treated the premiums as a business expense.
• You have a second business, a self-employed retirement plan or long-term care coverage.

What to gather:

• Insurer statements, or Form 1095-A for Marketplace coverage, showing premiums paid by month and who was covered.
• The dates you could have joined a subsidized plan maintained by your employer, your spouse's, or a covered child's or dependent's.
• Net profit from Schedule C, and any amounts on Schedule 1, lines 15 and 16.
• How the premiums were booked in each year's books and treated on each year's return.

What health care costs can I deduct on Schedule C?

Schedule C covers coverage you give your employees and business insurance that is not health insurance. It does not cover your own coverage (Schedule C instructions).

If one group plan covers you and your employees, split the insurer's bill by person. The employees' share goes on line 14; yours does not. Keep the insurer's invoice showing who is covered.

Where is the deduction taken, and which form figures it?

The deduction goes on Schedule 1 (Form 1040), line 17. A Schedule C filer can generally figure it on the worksheet in the Form 1040 instructions. Some cases require Form 7206 or Publication 974 instead.

Who qualifies: a net profit and a plan set up under my business?

You qualify if you were self-employed with a net profit reported on Schedule C and the health plan is established under your business (Form 7206 instructions). Your personal services must also be a material income-producing factor in the business (Form 1040 instructions).

Premiums for months before you were self-employed do not count. Publication 974 gives an example in which a person self-employed from mid-September could not deduct the January through August premiums, though those months may still qualify for the premium tax credit.

Does the policy have to be in my business's name, and does a single-member LLC count?

No. For a Schedule C filer, a policy in the business's name or in yours meets the plan test (Form 7206 instructions). A single-member LLC counts when it is taxed as a sole proprietorship. The IRS ignores a one-member LLC as a separate taxpayer unless it elects corporate treatment, so an individual owner generally reports its activity on Schedule C (IRS: single member LLCs).

An LLC with two or more members, or one that elected S corporation treatment, follows other rules. See health insurance for S corporation and partnership owners and how LLCs are taxed.

Can I pay the premium from my business account and include it in business expenses?

Paying from the business account does not make a premium a business expense. Record it as an owner's draw: money you take out of the business for yourself, not a cost of the business. The Form 7206 instructions set no reimbursement step for a Schedule C filer.

Publication 334 says a sole proprietor cannot deduct personal withdrawals from the business, and describes a drawing account as a separate account for recording business income you withdraw to pay personal and family expenses. Publication 583 says to use the business account for business purposes only and to write checks to yourself only for personal withdrawals. Paying premiums from a personal account avoids the mixing. If business money already paid them, see fixing commingled business and personal funds.

Premiums are usually a monthly debit or card charge. Set that payee to owner's draw once, or the bank feed will book it as an expense again each month. A premium charged to a business card is still a draw; paying the card later is just a card payment.

Keep a premium log outside the profit and loss statement, one row per month:

The return counts the premiums you paid during the year (26 USC 162(l)), while months you could join an employer plan are counted by coverage month. If your books follow coverage months, reconcile them to the payments made in the year before you fill in line 1 of Form 7206.

To post a draw, see recording an owner's draw. For other personal bills paid from the business account, see personal expenses paid from the business account.

I have been booking my premiums as a business expense. What do I fix?

Fix the books first, then check each filed return.

1. In the books, move each premium for your own coverage from an expense account to the owner's draw account for every open period.
2. For each filed year, find where the premium was deducted: a Schedule C expense, Schedule 1 line 17, both, or neither.
3. Check the months a subsidized employer plan was available, any Marketplace credit and any long-term care limit.
4. Compare what the return deducted with what the Form 7206 or worksheet rules produce.

A premium booked as a Schedule C expense lowers net profit, so it also lowers self-employment tax and the net profit limit on Form 7206. A premium deducted on Schedule C and again on Schedule 1, line 17 was deducted twice. A filed return that claimed the wrong amounts is corrected on an amended return (Form 1040-X). Whether an earlier year needs one depends on what that return claimed, and this guide cannot decide that.

A refund claim generally has to be filed within 3 years after the original return was filed or 2 years after the tax was paid, whichever is later (Form 1040-X instructions). Special rules and a payment lookback can limit what is refundable, so check each year's dates before rebuilding old records.

For how to reclassify entries and what changes once a year is filed, see recording an owner's draw.

Which months are left out because I could join an employer's plan?

Any month you were eligible for a subsidized health plan from your employer or your spouse's employer drops out, even if you did not join it. The Form 7206 instructions apply this to eligibility at any time during the month. The Form 1040 instructions give an example: eligibility from September 30 through December 31 removes September through December.

• The same test applies if you could have joined a subsidized plan maintained by the employer of a dependent or of a child under age 27. The test is whether you could have joined it.
• A qualified small employer health reimbursement arrangement counts as a subsidized plan.
• The test is applied separately to plans with long-term care coverage and plans without it.
• Premiums for left-out months may still count as medical expenses on Schedule A if you itemize.

The instructions and the statute (26 USC 162(l)) do not define "subsidized". Get the plan's terms from the employer, and keep them with your records, before treating a month as left out or included. If the answer is unclear, a professional can read the plan terms with you.

What is the limit when my business earns little or loses money?

The deduction is the smaller of your counted premiums or a net-profit limit. The limit starts with the net profit of the business the plan is set up under and takes off the deductible part of self-employment tax, any self-employed retirement plan deduction for that business, and any foreign earned income exclusion amount attributable to it (Form 2555) (Form 7206). The smaller amount goes to Schedule 1, line 17.

• Net loss: there is no profit to deduct against, so nothing is generally deductible on line 17: the statute allows no deduction beyond the earned income from the business the plan is set up under (26 USC 162(l)).
• Optional method for net earnings: Form 7206 uses the Schedule SE amount in place of net profit.
• Two businesses with separate plans: the Form 7206 instructions call for a separate form for each, and one business's profit does not raise the limit for the other's plan.

Whose premiums count: spouse, dependents, a child under 27, dental, vision, Medicare, long-term care?

Premiums count for you, your spouse, your dependents and your child under age 27 at the end of the year, even if that child is not your dependent (Form 7206 instructions).

For qualified long-term care insurance, include for each person the smaller of the premiums paid for that person or the limit for that person's age at the end of the year. The contract must meet the requirements listed in the Form 7206 instructions, and long-term care premiums make Form 7206 required.

The IRS sets these limits each year. The figures above are the ones Rev. Proc. 2025-32 gives for the tax year this page covers (section 4.27). The Form 7206 now published may show the prior year's limits. For an earlier year, use the limits printed on that year's Form 7206.

Does the deduction lower my self-employment tax or count as an itemized medical expense?

No to both. The deduction is an adjustment to income on Schedule 1, Part II (Form 1040 instructions), so it lowers the income your income tax is figured on. It does not lower self-employment tax: the Form 7206 instructions say you cannot subtract it when figuring net earnings for self-employment tax from the business that holds the plan. A premium deducted on Schedule C would lower those net earnings, which this deduction is not allowed to do.

The line 17 amount also cannot be counted again as a medical expense on Schedule A. Premiums you cannot deduct on line 17 may count there if you itemize and meet the Schedule A medical expense rules. The under-27 rule does not by itself make a nondependent child's premiums count there: excess premiums attributable to that child cannot be claimed on Schedule A, and Publication 502 explains how to allocate a premium increase caused by adding the child.

I bought Marketplace coverage and got the premium tax credit: why is the math circular?

The deduction and the premium tax credit depend on each other. The deduction lowers your income, and income sets the size of the credit. The credit in turn covers part of the premium, so less premium is left to deduct. Publication 974 says the deduction and the credit together cannot exceed the enrollment premiums.

• Use Publication 974, not the Form 1040 worksheet, if the plan was bought through the Marketplace and advance payments of the credit were made or you claim the credit.
• Publication 974 gives two ways to do the math: a longer method that repeats the calculation until the numbers settle, and a shorter one that in some cases is less favorable. It says you may use any method that satisfies both sets of rules.
• Gather Form 1095-A. The credit itself is figured on Form 8962.
• Premiums Publication 974 calls nonspecified are figured first, on their own: a policy outside the Marketplace, dental, qualified long-term care, voluntary Medicare premiums, and any part of a Marketplace premium that covers people outside your coverage family.

Example

These examples are illustrative; all figures are in US dollars. Unless an example says otherwise, assume one business, no wages or other self-employment income, no self-employed retirement deduction or Form 2555 exclusion, no Marketplace credit and no subsidized employer plan. In the four-month example, assume enough business earnings after adjustments to support the counted premiums.

A writer pays from the business account

A freelance writer pays $400 a month, $4,800 for the year, for an individual plan from her business account. Her spouse's employer offers her no plan. She has one business, no long-term care premiums and no Marketplace credit.

• Books: the $4,800 is an owner's draw, so her Schedule C net profit stays at $50,000.
• Return: she uses the Form 1040 worksheet. The limit is her net profit less half of self-employment tax, far above $4,800, so she deducts $4,800 on Schedule 1, line 17.

Premiums above net profit

A consultant has a Schedule C net profit of $6,000 and pays $9,000 in premiums. Self-employment tax on $6,000 is about $848 (92.35% of profit times 15.3%), and half, about $424, is deductible. The limit is $6,000 less $424, or about $5,576.

• He deducts about $5,576, the smaller of $9,000 and the limit.
• The other $3,424 is not deductible on line 17. It may count on Schedule A if he itemizes and the Schedule A rules allow it.

An employer plan was open for four months

A single-member LLC owner pays $500 a month, $6,000 for the year. His spouse's employer opened a subsidized plan to him on September 1, though he never joined.

• September through December drop out, so only 8 months, $4,000, count toward the deduction.
• The other $2,000 is not deductible on line 17 and may count on Schedule A if he itemizes.

Premiums booked as an expense for two years

A freelancer paid $4,800 a year for her own plan from the business account and booked it as insurance expense in both years. Her books showed net profit of $50,000 each year; without the premium it would have been $54,800.

• Year 1: the return deducted the premium on Schedule C only. Self-employment tax was figured on $50,000, not $54,800, so it was about $678 too low ($4,800 times 92.35% times 15.3%).
• Year 2: the return deducted the premium on Schedule C and again on Schedule 1, line 17, so the same $4,800 was deducted twice.
• Now: the premiums move to owner's draws in the open books. Whether Year 1 or Year 2 needs an amended return depends on what each filed return claimed.

Different for you?

• Premiums were booked as a business expense for several years, or your preparer disagrees with your books: the books and each filed return have to be compared year by year before anything changes. Bring insurer statements, your books and your filed returns to individual tax help, and to bookkeeping help if the books need to be rebuilt.
• You had Marketplace coverage with a premium tax credit, a loss year, more than one business or long-term care premiums: the credit and the deduction depend on each other, a loss generally makes the limit zero, and the limit is figured business by business. Bring Form 1095-A, each business's net profit and the premium records to individual tax help.
• Premiums were never claimed, years were missed, or you received an IRS notice about the deduction: each year has its own limit and employer-plan months. Bring insurer statements and the missed or noticed years to individual tax help.
• You live abroad or file Form 2555: filing Form 2555 requires Form 7206, and any exclusion attributable to this business reduces its limit. Living abroad alone does not trigger those rules. Bring any Form 2555 and your net profit to cross-border tax help.
• You are an S corporation shareholder, a partner or the owner of a C corporation: the deduction depends on what the company pays and reports. See health insurance for S corporation and partnership owners.
• Your LLC has more than one member or elected corporate tax treatment: see how LLCs are taxed and how to pay yourself from an LLC.
• Personal and business money are mixed across months: see fixing commingled business and personal funds.