Can You Deduct Self-Employed Health Insurance?
Health insurance is one of the biggest expenses for self-employed individuals and small business owners. The good news? In many cases, you can deduct your health insurance premiums as a self-employed health insurance deduction on your tax return.
But — and this is where many business owners get tripped up — there are specific rules and restrictions you need to know before claiming this valuable deduction.
When You Can’t Deduct Health Insurance
One of the most important rules centers around spousal coverage:
If your spouse is eligible for health insurance through their employer, you cannot deduct your own premiums — even if your spouse declines the coverage.
It doesn’t matter whether you’re actually covered under your spouse’s plan. What matters is eligibility.
Example: If your spouse has health insurance available at work but chooses not to enroll, you cannot deduct your own premiums.
However, there is a gray area when your spouse changes jobs. For instance, if their new job has a 90–120 day waiting period before benefits kick in, any health insurance you pay for during that gap is deductible as self-employed health insurance.
Single & Fully Self-Employed
If you’re single and your only source of income is from self-employment, things are simpler. In this case, your health insurance premiums are generally deductible — no extra hoops to jump through.
How Your Business Structure Affects the Deduction
Here’s where entity type comes into play:
Sole Proprietors (Schedule C)
If you’re a sole proprietor, you can deduct your health insurance premiums directly on your tax return. Just keep a record of your annual premiums and share them with your tax professional.
S Corporations
If you own an S corporation, the process is a little more complex. To claim the deduction as a shareholder who owns more than 2% of the business, you need to:
Run your health insurance through payroll – Your premiums must be included in your W-2 as taxable wages.
Report it correctly – On your W-2, it should be noted in Box 14 as “self-employed health insurance.”
Deduct it on your tax return – This way, even though it’s added to wages, you still get the deduction in the end.
If your payroll isn’t set up to do this, you may miss out on the deduction. That’s why it’s important to work with a bookkeeper or CPA who understands S corp compliance.
At The Holistic CPA, we use Gusto payroll, which makes tracking and reporting these premiums seamless.
Final Thoughts
The self-employed health insurance deduction can save you thousands in taxes — but only if it’s set up and reported correctly. The rules differ based on whether you’re married, single, or operating as an S corporation, so it’s always worth double-checking your setup.
If you’re unsure whether you’re taking full advantage of this deduction, reach out — we help health and wellness business owners navigate these rules every day.
