Self-Employed Health Insurance Deduction: Form 7206 Guide

Quick answer: The self-employed health insurance deduction lets freelancers, sole proprietors, partners and more-than-2% S corporation shareholders deduct medical, dental, vision and qualified long-term care premiums for themselves, a spouse and dependents. It is claimed on Schedule 1 of Form 1040, often via Form 7206, and is limited to net profit from the business, minus related deductions.

Buying your own health insurance is one of the biggest costs of working for yourself, so this deduction is worth getting right. It lowers your income tax even if you take the standard deduction. This guide explains who qualifies, which premiums count, how the profit limit works, how to complete Form 7206 and where people commonly go wrong, with a worked example. If you are just starting out, track every payment from day one: sending numbered invoices with our free invoice generator makes your profit figure easy to prove.

Important: This is general information, not tax advice. At the time of writing, the 2025 Form 7206 and instructions are the latest final versions; check the 2026 versions when they are released.

Who can claim the self-employed health insurance deduction

According to the IRS instructions for Form 7206, you may be able to take the deduction if you were:

• Self-employed with a net profit on Schedule C or Schedule F. This includes single-member LLC owners taxed as sole proprietors.
• A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), box 14, code A.
• Using an optional method to figure net earnings on Schedule SE.
• A more-than-2% S corporation shareholder who received wages from the company, with premiums paid or reimbursed by the S corporation and included in your W-2 wages.

Two further conditions apply. The plan must be established under your business, which for a sole proprietor can be a policy in your own name. And you cannot claim the deduction for any month you were eligible for an employer-subsidized plan, covered next. Business structure affects how the plan is set up, so see LLC vs sole proprietorship and S corp vs LLC if you are deciding how to organize.

The employer-subsidized plan rule

You cannot deduct premiums for any month you were eligible to participate in a health plan subsidized by your employer, your spouse's employer, or the employer of your dependent or of your child under age 27. Eligibility is what counts, not enrollment. The test is monthly and is applied separately to long-term care coverage. A freelancer who also works a part-time job with subsidized health coverage generally loses the deduction for those months.

Which premiums qualify

Premium type	Deductible?	Notes
Medical insurance, including Marketplace plans	Yes	Reduced if you receive the premium tax credit (see below)
Dental and vision insurance	Yes	Same rules as medical
Qualified long-term care insurance	Yes, up to age limits	Per-person cap based on age
Medicare premiums you voluntarily pay	Yes	Coverage in your name similar to private insurance
Coverage for your child under 27	Yes	Even if not your dependent
Out-of-pocket costs: deductibles, copays, prescriptions	No	Possibly Schedule A medical expenses, or HSA
Premiums for months with a subsidized employer plan available	No	Monthly test

2026 long-term care premium limits

Qualified long-term care premiums count only up to an age-based limit per person. Revenue Procedure 2025-32 sets the 2026 limits, compared with the 2025 limits printed on the 2025 Form 7206:

Age at end of year	2025 limit	2026 limit
40 or under	$480	$500
41 to 50	$900	$930
51 to 60	$1,800	$1,860
61 to 70	$4,810	$4,960
71 or older	$6,020	$6,200

The net profit limit

The deduction cannot exceed the earned income from the business under which the plan is established. Form 7206 works this out by starting with your net profit and subtracting:

• The deductible part of your self-employment tax attributable to that business.
• Contributions to self-employed SEP, SIMPLE and qualified retirement plans from that business, such as a Solo 401(k) or SEP IRA.

Your deduction is the smaller of your eligible premiums or that adjusted profit. If you have a loss, the deduction is zero. Any premiums you cannot deduct here may still count as medical expenses on Schedule A if you itemize, subject to the 7.5% of AGI floor.

Note that the deduction lowers income tax only. It does not reduce net earnings for self-employment tax, so you still pay 15.3% Social Security and Medicare tax on profit used to buy insurance.

How to complete Form 7206

The 2025 form follows this sequence. Use a separate Form 7206 for each business under which a plan is established.

1. Line 1: total premiums paid for medical, dental and vision coverage for the year, excluding months with subsidized employer coverage available and excluding long-term care.
2. Line 2: qualified long-term care premiums, the smaller of payments or the age limit for each covered person.
3. Line 3: add lines 1 and 2.
4. Line 4: net profit and other earned income from the business where the plan is established.
5. Lines 5 to 7: if you have more than one profitable business, allocate the deductible part of self-employment tax to this business.
6. Lines 8 to 10: subtract that SE tax amount and any self-employed retirement contributions for this business.
7. Line 11: S corporation shareholders enter Medicare wages from the S corporation instead.
8. Lines 12 and 13: adjust for any foreign earned income exclusion.
9. Line 14: the smaller of line 3 or line 13. This is your deduction, carried to Schedule 1 (Form 1040), line 17 on the 2025 form.

The instructions say you must use Form 7206, rather than the simpler worksheet in the Form 1040 instructions, if you had more than one source of self-employment income, file Form 2555, or are including qualified long-term care premiums.

Worked example: a freelancer with family coverage

Alex is a self-employed web developer filing Schedule C. In 2026 Alex has $60,000 net profit and pays $650 a month for a family health plan, $7,800 for the year. Alex's spouse starts a job in October with a subsidized employer plan the family could join, so October to December premiums do not count. Alex also contributes $5,000 to a SEP IRA.

Step	Calculation	Amount
Eligible premiums (January to September)	9 months x $650	$5,850.00
Self-employment tax	$60,000 x 92.35% x 15.3%	$8,477.73
Deductible half of SE tax	$8,477.73 / 2	$4,238.87
Profit limit	$60,000 - $4,238.87 - $5,000	$50,761.13
Deduction	Smaller of $5,850.00 or $50,761.13	$5,850.00

If Alex's income lands in the 12% bracket, the deduction saves about $5,850 x 12% = $702 in federal income tax. Alex cannot deduct the $1,950 paid for October to December under this deduction, because subsidized coverage was available.

When the profit limit bites

Now take Sam, who started freelancing late in the year: $4,000 net profit and $6,000 of eligible premiums. SE tax is $4,000 x 92.35% x 15.3% = $565.18, and half is $282.59. The limit is $4,000 - $282.59 = $3,717.41, so Sam deducts $3,717.41. The remaining $2,282.59 may go on Schedule A as a medical expense if Sam itemizes and clears the 7.5% floor. Growing profit by sending more invoices directly raises the deduction available.

Step-by-step: claiming the deduction on your return

1. Gather premium records. Collect statements showing what you paid each month for medical, dental, vision, long-term care and Medicare coverage. For Marketplace plans, have Form 1095-A ready.
2. Mark ineligible months. List any month you, your spouse, a dependent or a child under 27 could have joined a subsidized employer plan.
3. Finish Schedule C and Schedule SE first. You need your net profit and the deductible half of self-employment tax before you can apply the limit. Make sure your income matches the invoices you issued and the payments you received.
4. Decide on retirement contributions. SEP, SIMPLE or Solo 401(k) contributions for the same business reduce the limit, so finalize them before the health insurance figure.
5. Complete Form 7206 or the Form 1040 worksheet, depending on whether one of the mandatory Form 7206 situations applies.
6. Enter the result on Schedule 1. It flows to Form 1040 as an adjustment to income, reducing AGI.
7. Keep the records with your return in case the IRS asks you to prove the premiums and the monthly eligibility.

Because the deduction depends on your profit, it rewards clean bookkeeping. Every invoice you send and every payment you receive feeds into Schedule C, so missing income records can understate profit in a year when the limit matters. A simple routine of numbering invoices, saving PDFs and recording payments weekly is enough for most freelancers.

Marketplace plans and the premium tax credit

If you buy coverage through the Health Insurance Marketplace and receive advance payments of the premium tax credit, the two calculations interact: your deduction depends on the credit and the credit depends on your income, which depends on the deduction. The Form 7206 instructions refer you to IRS Publication 974 for this case, which provides an iterative or simplified calculation. Tax software usually handles it. In general, you can only deduct the premiums you actually paid, not the part covered by the credit.

Health insurance for S corporation owners and employees

If you own more than 2% of an S corporation, the company should pay or reimburse your premiums and include them in your W-2 wages (box 1, but not Social Security and Medicare wages). You then claim the self-employed health insurance deduction on your personal return, using your S corporation Medicare wages as the limit on Form 7206 line 11.

If you have employees and pay for their coverage, that is generally a business expense on your return, not this deduction. Our list of business expense categories shows where it goes.

Common mistakes to avoid

• Claiming months when subsidized coverage was available through a spouse or second job.
• Deducting premiums on Schedule C instead of Schedule 1, which wrongly lowers self-employment tax.
• Double counting the same premiums on Schedule A.
• Ignoring the profit limit in a low-income or loss year.
• Forgetting long-term care age caps or claiming them without Form 7206.
• Overlooking dental, vision and Medicare premiums, which also count.

This deduction is one of many; see the full list of self-employed tax deductions. To see how it changes your bracket, check the sibling guide to the 2026 tax brackets, and remember to factor it into your quarterly estimated taxes.

Grow the profit that supports your deduction

The self-employed health insurance deduction lets you deduct eligible medical, dental, vision, Medicare and long-term care premiums for your household, up to your business profit after the deductible part of SE tax and retirement contributions, for each month you had no subsidized employer plan available. Use Form 7206 when you have multiple businesses or long-term care premiums.

Clear records of what you earned make every limit easy to support. Bill clients from the US invoice generator, choose a clean layout like the minimal invoice template, and create your next invoice free. Download the result as a PDF invoice you can email, print or upload to a client portal.