A tax deduction that could put cash in your pocket
As a self-employed individual, you know that health coverage isn’t cheap. The good news? The IRS lets you deduct those premiums from your taxes. This deduction can include medical, dental, and even some long-term care insurance for yourself, your spouse, and your dependents. The even better news: it reduces your adjusted gross income (AGI), which means you can even qualify for other tax deductions.
Unlike the majority of deductions, you don’t need to itemise in order to benefit. You simply report it on Schedule 1 of Form 1040 and bring it back with your return.
Who is eligible to take the deduction?
You are eligible month by month. You can take the deduction for any month during which you and your spouse did not qualify for an employer-sponsored medical plan.
Example: You quit in June and went on to freelance. You can only claim premiums from July to December—and not for months you were covered under the employer plan.
You’ll need to complete Form 7206, Self-Employed Health Insurance Deduction, to actually claim this break.
earned income limitations
There’s a catch: you can only deduct a maximum of earned income from your business.
That means that if your venture did not bring a profit—or, worse still, resulted in a loss—you may not take the deduction. So, for instance, if your business brought in $5,000 but cost you $7,000 in premiums, you can only deduct $5,000.
As CPA Miguel Burgos explains:
“If you’re filing Schedule C or Schedule F, you can buy insurance in your name or your business name and qualify for the deduction.”
What about partners and LLC members?
Better news here: if you’re a partner or an LLC member who is treated as a partner, you’re self-employed for tax purposes.
If you pay your health insurance premiums yourself, you can deduct them.
If the partnership or LLC pays your premiums for you, there are special reporting rules—but you can still deduct the cost on your individual return.
Deductions for employees’ coverage
Do you have workers? If you reimburse their health insurance premium, those are deductible too—but not under the self-employed health insurance deduction. Instead, they are employee benefit programme costs.
Example:
- Sole proprietors utilize Schedule C.
- Other businesses deduct it on the appropriate business return form.
- Long-Term Care Insurance: Age-Based Restrictions
There are updated limits in 2025 of the amount you can deduct for long-term care insurance.
- Age 40 or less: up to $480
- Age 41 to 50: up to $900
- Age 51 to 60: up to $1,800
- Age 61 to 70: up to $4,810
- Age over 70: up to $6,020
These are maximum amounts that help older taxpayers pay for growing costs of future care.
Why this deduction is important
Health insurance isn’t getting cheaper, and when you’re self-employed, a dollar is a dollar. This deduction makes it a little easier and ensures you and your family are covered. It’s also a reminder that tax policies can pay dividends—if you know how they operate.
With such new legislation as the One Big Beautiful Bill changing other tax policies, being in the know is more important than ever.
The bottom line
If you’re self-employed in 2025, don’t skip this deduction. It can lower your taxable income and make you able to pay those exorbitant health premiums. If you’re a consultant, freelancer, or small business owner, see if you qualify and take what’s yours.
And don’t forget—you don’t need to do it alone. A tax pro or software like TurboTax can walk you through properly filling out Form 7206, maximise your deductions, and avoid pitfalls.
Because at the end of the day, the goal is simple: hold onto more of your money, stay healthy, and thrive in your business.
Would you have me also build a quick checklist format at the end of the article so readers have a “cheat sheet” of needs and steps?
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