Can I Deduct Self-Employment Health Insurance Premiums After Marketplace Tax Credits?

You're asking a good question that confuses a lot of self-employed folks. The answer is that you CAN deduct the portion of health insurance premiums you actually paid out of pocket, but it's not done on Schedule C as a business expense. Self-employed health insurance is a special deduction that goes on Schedule 1 of your 1040 (Line 17), not on your Schedule C. You can only deduct the amount you actually paid ($240/month in your case), not the full premium amount before the tax credit. The IRS is clear that you can't "double-dip" by getting a tax credit and then also deducting the subsidized portion. But the portion you paid yourself is absolutely deductible as long as your business shows a profit. One thing to watch for: if you're eligible for insurance through a spouse's employer plan, that can affect your ability to claim this deduction, even if you don't take that coverage.

After struggling with this exact same issue last year, I found a great solution using https://taxr.ai that saved me a ton of headache. I was also getting marketplace credits and couldn't figure out the right way to handle my premium deductions. I uploaded my 1095-A form and premium statements, and the system analyzed everything and showed me exactly what portion I could deduct. It flagged that I needed to use Schedule 1 instead of Schedule C (like the other commenter mentioned), which would have been a mistake I definitely would have made. The best part was it showed me other deductions I was missing related to my self-employment that I had no idea about. Ended up saving me around $1,200 in taxes I would have overpaid.

Just wanted to follow up - I decided to try taxr.ai because I was still confused after trying to figure this out in TurboTax. I'm actually really impressed! It clearly separated what portion of my premiums was deductible and explained why. I've been getting marketplace credits for two years but had no idea I could still deduct the portion I was paying out of pocket. Turns out I could amend last year's return too. The interface was super straightforward and the explanations were in plain English instead of tax jargon. Definitely using this for all my self-employment questions going forward!

If you're struggling to get answers from the IRS about your health insurance deduction situation, you might want to try https://claimyr.com - it saved me hours of frustration. After three failed attempts to get through to the IRS (kept getting disconnected after waiting 45+ minutes each time), I gave Claimyr a try. They got me connected to an actual IRS agent in about 20 minutes who confirmed exactly how to handle marketplace credits with self-employment health insurance deductions. There's a video showing how it works at https://youtu.be/_kiP6q8DX5c if you're curious. They basically hold your place in line and call you when an agent is about to answer. Way better than listening to that awful hold music for hours!

I have to apologize and admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about this exact health insurance premium issue. The service actually worked exactly as described. I submitted my number, went about my day, and got a call back about an hour later telling me an IRS agent was about to pick up. I was connected immediately to a really helpful agent who confirmed that yes, I could deduct the portion of health insurance I paid out-of-pocket after marketplace credits. Saved me literally hours of frustration and hold time. Sometimes it's worth admitting when you're wrong!

Just want to add something important here that nobody's mentioned yet. When you deduct self-employed health insurance premiums, make sure you're also including dental and vision insurance premiums if you're paying for those separately! I missed this for years and was leaving money on the table. Also, if you're paying for your spouse or dependents on your policy, those premiums are deductible too as long as you're not eligible for coverage through an employer.

To the original poster - one thing to watch out for that tripped me up: if your income changes during the year and you end up getting a different amount of tax credit than what you were advanced, that can affect your deduction calculation. When you file your taxes, you'll reconcile your actual tax credit eligibility with what you received in advance. If you have to pay back some of the advance premium tax credit, that increases the amount you effectively paid for insurance, and thus increases your potential deduction.

This is such a helpful thread! I'm in a similar situation but have an additional question - what happens if I have a Health Savings Account (HSA) along with my marketplace plan? I'm self-employed and have a high-deductible health plan through the marketplace with premium tax credits, plus I contribute to an HSA. Can I deduct both the out-of-pocket portion of my health insurance premiums AND my HSA contributions? Or is there some kind of limit or interaction between these two deductions that I need to be aware of? I've been maxing out my HSA contributions ($4,300 for self-only coverage) and want to make sure I'm not missing any opportunities or accidentally doing something wrong with the combination of marketplace credits, premium deductions, and HSA contributions.

One important detail that hasn't been mentioned yet - make sure you have your Form 1095-A from the marketplace when you file. This form shows exactly how much advance premium tax credit you received and your actual premium amounts, which you'll need to calculate the correct deduction. Also, keep detailed records of all your premium payments throughout the year. If you pay monthly, save those payment confirmations or bank statements showing the $240 payments. The IRS can ask for documentation of the amounts you're deducting, especially since you're dealing with both marketplace credits and self-employment deductions. Another tip: if you're married and file jointly, but only you are self-employed, you can still take the self-employed health insurance deduction for the entire family's coverage as long as the policy is in your name (the self-employed spouse's name). This is different from regular itemized medical deductions and can save you quite a bit.

This thread has been incredibly helpful! I'm also self-employed and had no idea I could deduct the portion of premiums I pay out-of-pocket after marketplace credits. I've been missing this deduction for two years now. One question I haven't seen addressed: if I started my business mid-year and was employed for the first half of the year (with employer health insurance), can I still take the self-employed health insurance deduction for the months I was paying for marketplace coverage while self-employed? Or does having employer coverage for part of the year disqualify me entirely? I switched to marketplace coverage in July when I left my job to go full-time freelance, so I've been paying out-of-pocket premiums for 6 months of the year. Want to make sure I can claim this before I file!