How the self-employed health insurance deduction works in 2026

Who qualifies for the self-employed health insurance deduction?

You can claim the deduction if you were self-employed and had a net profit on Schedule C (or Schedule F), were a partner with self-employment earnings, or were a more-than-2% shareholder of an S corporation that included your premiums in your W-2 wages. A freelancer filing Schedule C with a profit for the year meets the first test.

The plan must be established under your business. For a Schedule C filer, the policy can be in the business's name or your own name, so an individual policy you buy yourself generally works.

The month-by-month eligibility rule

You can't count premiums for any month in which you were eligible to participate in a subsidized health plan offered by your employer, your spouse's employer, or the employer of your dependent or your child under age 27. Eligibility is what matters: if your spouse's employer offered you a subsidized plan and you declined it, those months don't count.

The test runs month by month. If you left a W-2 job at the end of March and bought your own policy, premiums from April onward can count. The IRS applies this rule separately to long-term care coverage and to other health coverage.

Which premiums count

• Medical insurance for you, your spouse and your dependents.
• Dental and vision insurance.
• Coverage for a child under age 27 at the end of the year, even if the child is not your dependent.
• Medicare premiums you voluntarily pay for coverage in your name.
• Qualified long-term care insurance, up to an age-based limit per person.

2026 long-term care premium limits

For each covered person, you can include the smaller of the premiums actually paid or the limit for that person's age at the end of the year. Rev. Proc. 2025-32 sets these limits for 2026:

The contract must be a qualified long-term care contract: guaranteed renewable, with no cash surrender value, and covering only qualified long-term care services. Your insurer can tell you whether a policy qualifies.

The net profit limit

The deduction can't be more than the earnings from the business under which the plan is established. Form 7206 figures that limit this way:

1. Start with net profit from that business.
2. Subtract the deductible half of your self-employment tax (the share tied to that business if you have more than one).
3. Subtract retirement contributions you deduct for yourself through that business, such as SEP, SIMPLE or solo 401(k) contributions.
4. Compare the result to your eligible premiums. You deduct the smaller amount.

Premiums above the limit aren't lost entirely. You can include them as medical expenses on Schedule A if you itemize. You can't count the same dollars in both places.

Worked example

A 45-year-old single freelancer has $60,000 of net profit in 2026 and no access to any employer plan. They pay $650 a month for medical insurance, $55 a month for dental and vision, $1,200 for a qualified long-term care policy, and contribute $5,000 to a SEP IRA.

The full $9,390.00 reduces adjusted gross income. The $8,477.73 of self-employment tax does not change, because that tax is figured on net profit before this deduction.

When the limit binds

Now say the same freelancer had a slow year with $9,000 of net profit and no retirement contribution. Self-employment tax is $1,271.66, half of it is $635.83, and the limit is $9,000 − $635.83 = $8,364.17. The deduction is $8,364.17, and the remaining $1,025.83 of premiums can go on Schedule A only if they itemize.

It reduces income tax, not SE tax

The deduction goes on Schedule 1 (Form 1040) as an adjustment to income. That lowers your adjusted gross income and your income tax whether or not you itemize. It does not reduce your net earnings for self-employment tax. Use the self-employment tax calculator with your full net profit, and read how to calculate self-employment tax for the formula.

Because it lowers adjusted gross income, the deduction can also affect other figures that depend on income, such as the QBI deduction.

When you need Form 7206

Many filers can use the worksheet in the Form 1040 instructions. You must use Form 7206 if any of these apply:

• You had more than one source of income subject to self-employment tax.
• You file Form 2555 (foreign earned income).
• You are including qualified long-term care premiums.

If you have plans under more than one business, you use a separate Form 7206 for each plan's limit. Tax software normally completes the form from your answers.

Marketplace coverage and the premium tax credit

If you bought coverage through the Health Insurance Marketplace and received advance payments of the premium tax credit, or you claim the credit, the two calculations depend on each other. The deduction lowers your income, which can change the credit, and the credit changes how much premium you paid yourself. IRS Publication 974 has worksheets and two methods, a simplified one and an iterative one, for working this out. This is a case where good tax software or a tax professional is worth it.

Plan for it in your estimates

The deduction lowers your income tax, so it lowers the estimated payments you need to make. The quarterly estimated tax calculator and the guide on how much to set aside for taxes help you size those payments. If you are setting a rate, remember that health insurance is a real cost of working for yourself; the freelance rate calculator lets you build it in.

If you had a mix of employer coverage and self-paid coverage during the year, or you have both Marketplace credits and long-term care premiums, talk to a tax professional before you file.