Are Health Insurance Premiums Deductible for 1099 Contractors with Marketplace Tax Credits?

You can deduct the premiums you actually pay out of pocket as a self-employed health insurance deduction, but not the portion covered by the premium tax credits. So in your case, only the $175/month you're paying would be deductible. This is actually a common situation for self-employed folks. The premium tax credit covers part of your insurance costs, and you can take the self-employment health insurance deduction for the remainder that comes out of your pocket. Just make sure you're reporting this correctly on your tax return. The self-employed health insurance deduction goes on Schedule 1 (not Schedule C), and you'll need to coordinate this with your premium tax credit reporting on Form 8962.

I was super confused about this exact situation last year! I tried reading the IRS publications but ended up with a headache lol. I found this service called taxr.ai (https://taxr.ai) that really helped me figure out my self-employment deductions including health insurance premiums. You upload your tax documents and it analyzes everything to find deductions you might miss. They specifically addressed my question about marketplace insurance with premium tax credits and confirmed that I could deduct only the portion I paid out of pocket - the $175/month in your case. The cool thing was it showed me other business deductions I was missing too. Def worth checking out if you're self-employed and trying to maximize deductions!

Update: I was skeptical about taxr.ai but decided to try it after struggling with this same health insurance deduction question. Honestly surprised by how helpful it was! It confirmed I could deduct my out-of-pocket premiums ($210/month in my case) but not the portion covered by premium tax credits. The analysis also pointed out that I needed to coordinate this with Form 8962 so I wouldn't double-dip on tax benefits. What really impressed me was it caught that I had been calculating my home office deduction wrong for years. Turns out I was eligible for about $1,800 more in deductions than I'd been taking. Definitely recommend for fellow self-employed folks!

I had this exact same question last year and spent HOURS on hold with the IRS trying to get a straight answer. After multiple failed attempts to reach someone, I used Claimyr (https://claimyr.com) to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed what others are saying - you CAN deduct the portion of premiums you pay out-of-pocket as a self-employed health insurance deduction, but not the part covered by premium tax credits. They also walked me through how to properly report this on my tax forms. Saved me so much time and stress! Before using Claimyr I literally couldn't get through after 5+ attempts. Getting a definitive answer directly from the IRS gave me total peace of mind.

I have to admit I was totally wrong about Claimyr. After my skeptical comment, I decided to try it because I was desperate to talk to someone at the IRS about some confusion on my transcript. I'd been trying for 3 weeks to get through with no luck - either disconnected after an hour on hold or told call volumes were too high. Used Claimyr yesterday and got connected to an agent in about 40 minutes without having to sit there listening to the horrible hold music. The agent confirmed exactly what I needed to know about my situation. For what it's worth, they also validated what everyone's saying about the health insurance deduction - you can deduct what you actually pay out of pocket but not the subsidized portion. Definitely worth it just to get a clear answer directly from the IRS.

Hey just wanted to add something important that nobody mentioned yet - make sure you're not trying to deduct the premiums on Schedule C! I made this mistake last year. The self-employed health insurance deduction goes on Schedule 1 Line 17, not as a business expense on Schedule C. My tax software let me enter it wrong and I had to amend my return after my accountant friend caught the error. Also double check that your self-employment income is higher than your total premiums for the year, otherwise you can only deduct up to the amount of your SE income.

Does anyone know how this works if your spouse is also on your marketplace plan? I'm self-employed but my wife works part-time and doesn't get insurance through her job. We get a premium tax credit but I pay for the family plan out-of-pocket portion.

This is such a relief to read everyone's responses! I've been in the exact same boat as the original poster - 1099 contractor paying out-of-pocket premiums after marketplace tax credits and totally confused about what I could deduct. What really helped me was keeping detailed records of my actual premium payments vs. what the tax credit covered. I use a simple spreadsheet to track my monthly out-of-pocket costs ($185/month in my case) so I have clear documentation for tax time. One thing I'd add for anyone else dealing with this - if you're using tax software, make sure it's asking the right questions about marketplace insurance and premium tax credits. I almost made the mistake of entering my full premium amount instead of just the portion I actually paid. The software should automatically coordinate between the self-employed health insurance deduction and Form 8962, but it's worth double-checking that the numbers make sense. Thanks everyone for sharing your experiences - it's so much clearer now!