Health plan premiums are deductible only in specific situations, and the rules depend on who pays them

If you pay for health insurance yourself, you can deduct premiums only if you are self-employed or own a business. Employees whose employers pay premiums cannot deduct them — the premiums are already excluded from taxable income before you see your paycheck. If you buy insurance on the individual market and are not self-employed, premiums are not deductible on your federal tax return, though you may be able to reduce your out-of-pocket costs through tax credits when you enroll.

The deduction available to self-employed people is called the self-employed health insurance deduction, and it appears on Schedule C or Schedule F, not on your itemized deductions. This deduction covers premiums you pay for yourself, your spouse, and your dependents — but only if the policy is in your name or your business's name.

Key Takeaways

  • Self-employed people and business owners can deduct health insurance premiums on Schedule C or Schedule F, but employees cannot.
  • If your employer pays your premiums, they are already excluded from your taxable wages and cannot be deducted again.
  • Individual market premiums are not deductible unless you are self-employed, but you may reduce costs through tax credits at enrollment.
  • Medicare premiums, Medicaid, and supplemental insurance have different deduction rules that depend on your income and filing status.
  • You cannot deduct premiums paid with pre-tax dollars through a cafeteria plan or health savings account a second time on your return.

Self-employed and business owner deductions

If you are self-employed — meaning you report business income on Schedule C — or you own a farm and file Schedule F, you can deduct health insurance premiums you pay for yourself and your family members. The deduction is limited to the amount of net self-employment income you earned that year. If your business lost money or earned less than your premiums cost, you can only deduct up to what you earned.

The premiums must be for a policy in your name, your spouse's name, or your business's name. You report this deduction on line 29 of Schedule 1 (Form 1040), not as an itemized deduction. This means you can take it whether you itemize or take the standard deduction.

If you are a partner in a partnership or a shareholder in an S corporation, your business may pay your premiums directly. In that case, the business deducts the cost, and the premiums do not appear on your personal return — but they also do not count toward your self-employed health insurance deduction limit.

Employee coverage and employer-paid premiums

If your employer pays your health insurance premiums, those premiums are not included in your taxable wages. This is an exclusion, not a deduction — it means the money never enters your taxable income in the first place. You cannot deduct something that was never taxed, so you cannot claim employer-paid premiums on your return.

Some employers offer a cafeteria plan (also called a Section 125 plan) that lets you pay premiums with pre-tax dollars taken from your paycheck. The amount you contribute this way is already excluded from your taxable income. You cannot deduct it again on your tax return.

If you left a job and continued coverage under COBRA, you can deduct COBRA premiums only if you are self-employed. If you are not self-employed, COBRA premiums are not deductible.

Individual market insurance and tax credits

If you buy health insurance on the individual market — through your state's marketplace, Healthcare.gov, or directly from an insurer — and you are not self-employed, the premiums themselves are not deductible. However, you may be able to reduce your out-of-pocket costs through the premium tax credit (also called the Advanced Premium Tax Credit or APTC).

The premium tax credit is not a deduction; it is a credit that reduces the amount you owe when you file your return. You claim it by filing Form 8962 with your tax return. The credit is based on your household income and the cost of the second-lowest-cost silver plan in your area. If you received advance payments of the credit during the year, you must reconcile those payments on Form 8962 when you file.

You can only claim the premium tax credit if you enrolled through an official marketplace (such as Healthcare.gov or your state's exchange) and did not have access to affordable employer coverage. If you bought insurance directly from an insurer outside the marketplace, you cannot claim the credit.

Medicare and supplemental insurance premiums

Medicare Part B and Part D premiums are not deductible for most people. However, if you are self-employed, you can deduct Medicare premiums (Part A, Part B, Part D, and Medicare Advantage premiums) as part of your self-employed health insurance deduction, subject to the same net self-employment income limit.

Supplemental insurance (Medigap) premiums follow the same rule: they are deductible only if you are self-employed. If you are a retiree receiving Social Security or pension income, you cannot deduct Medicare or Medigap premiums unless you also have self-employment income.

Long-term care insurance premiums have a separate deduction limit that depends on your age. If you are self-employed, you may be able to deduct a portion of long-term care premiums, but the amount varies by age and is adjusted annually. Check the IRS website or your tax software for the current year's limits.

Health savings accounts and other pre-tax arrangements

If you contribute to a health savings account (HSA), you can deduct contributions on your tax return (or they may be deducted automatically if your employer sets up payroll deductions). However, you cannot deduct premiums for the high-deductible health plan that qualifies you for the HSA — that premium is either paid by your employer (and excluded from income) or paid by you with after-tax dollars.

Money in an HSA can be used to pay premiums only in specific situations: if you are receiving unemployment benefits, you can use HSA funds to pay for COBRA or other continuation coverage. If you are retired and over 65, you can use HSA funds to pay Medicare premiums. In all other cases, HSA funds used for premiums are subject to income tax and a 20 percent penalty.

Flexible spending accounts (FSAs) work differently: you can use FSA funds to pay out-of-pocket costs like copays and deductibles, but not premiums. If you try to use FSA funds for premiums, the amount is treated as a taxable distribution.

What you need to document

If you claim a self-employed health insurance deduction, keep copies of your insurance policy, premium statements, and proof of payment. The IRS does not require you to attach these documents to your return, but you must have them if the IRS asks.

If you claim the premium tax credit, keep Form 1095-B (Health Insurance: Coverage) and Form 1095-A (Health Insurance Marketplace Statement) with your records. Form 1095-A shows the advance credit payments you received during the year, and you must reconcile this amount on Form 8962.

If you are self-employed and your business pays premiums directly to the insurer, keep invoices and payment records showing the premiums were paid by the business and the policy is in your name or your business's name.

Frequently Asked Questions

Can I deduct premiums if I am unemployed?

No, unless you are self-employed. If you lost your job and are receiving unemployment benefits, you can use a health savings account to pay COBRA premiums, but you cannot deduct the premiums themselves. You may be able to reduce costs through the premium tax credit if you buy coverage on the marketplace.

What if my spouse is self-employed and I am an employee?

Your spouse can deduct their own health insurance premiums and yours (if you are covered under a policy in their name or the business's name) as part of their self-employed deduction. Your employer-paid premiums are excluded from your income and cannot be deducted by either of you.

Do I have to choose between the self-employed deduction and the premium tax credit?

Yes. If you are self-employed and buy insurance on the marketplace, you can claim the self-employed deduction for the premiums you pay, or you can claim the premium tax credit, but not both for the same premiums. The self-employed deduction usually provides a larger benefit.

Can I deduct premiums I paid in a previous year?

No. Premiums are deductible only in the year you paid them. If you paid premiums in December for coverage beginning in January of the next year, you deduct them in the year you paid them, not the year the coverage begins.

What if my insurance company sent me a refund?

If you received a premium refund, you must reduce your deduction by the amount of the refund. If the refund was received in a different tax year than the year you paid the premiums, you may need to amend your return for the year you claimed the deduction.