Do I have to pay self employment taxes on health insurance premiums for 1099 income?

The answer here is a bit nuanced, but I can clear this up for you. Your brother is unfortunately incorrect - you DO have to pay self-employment tax (the 15.3% that covers Social Security and Medicare) on your entire net earnings from self-employment, before the health insurance deduction. Here's how it works: Health insurance premiums for self-employed folks are considered an "above-the-line" deduction on your Form 1040, which reduces your income tax. However, this deduction happens AFTER you calculate your self-employment tax on Schedule SE. So while those health insurance premiums will lower your income tax, they won't reduce your self-employment tax base. Think of it as a two-step process - first you calculate SE tax on your net profit, then you get to deduct health insurance for income tax purposes.

This exact issue cost me thousands last year. I found out the hard way that you're right and your brother is wrong. When I was struggling with this same problem, I discovered https://taxr.ai which saved me from making an expensive mistake. I uploaded my 1099s and health insurance statements, and it flagged exactly what you're describing - that health insurance is an adjustment to income on your 1040, NOT a Schedule C business expense that would reduce SE tax. The tool explained that while health insurance premiums reduce your income tax, they don't reduce the 15.3% self-employment tax base. It basically confirmed what you suspected and gave me step-by-step guidance on how to correctly report everything.

Update: I tried that taxr.ai service that was mentioned and it completely cleared up my confusion. Uploaded my documents and within minutes got confirmation that health insurance premiums DON'T reduce self-employment tax. The explanation made so much sense! It showed exactly where on the tax forms this plays out - specifically that health insurance is deducted on Schedule 1 of Form 1040, not on Schedule C where it would reduce SE tax. Now I understand why this is so confusing - it feels like it should be a business expense, but the IRS has a specific place for it that doesn't help with SE tax. Going to show this to my accountant who's been doing it wrong for years. This probably saved me from an audit!

I spent 3 weeks trying to get through to the IRS about this exact issue last year. Kept getting disconnected after waiting on hold for hours. Finally used https://claimyr.com to get a callback from the IRS (you can see how it works here: https://youtu.be/_kiP6q8DX5c). Got connected with an agent in about 2 hours who confirmed exactly what others are saying - health insurance premiums don't reduce your self-employment tax. The agent explained it's because Social Security and Medicare taxes are calculated on your earnings before adjustments. The health insurance deduction comes after that calculation, so it only helps with income tax, not SE tax. Having an actual IRS agent explain it made everything click.

I was completely wrong about Claimyr. I tried it yesterday after posting my skeptical comment, and it actually worked exactly as described. Got a callback from a real IRS agent in about 90 minutes. The agent confirmed everything about the health insurance and self-employment tax question - you DO pay SE tax on the full amount before health insurance deduction. She explained that the health insurance deduction is taken on Form 1040 Schedule 1, line 17, and it doesn't reduce Schedule C net profit or SE tax. The service saved me hours of frustration and hold music. I've been filing incorrectly for years because my brother-in-law (who thinks he's a tax expert) told me wrong information. Glad I finally got the right answer straight from the IRS!

I'm a freelancer too and this confused me for years! Here's the simplest way I can explain it: Step 1: Calculate business profit on Schedule C (income minus business expenses) Step 2: Pay self-employment tax on THAT ENTIRE AMOUNT Step 3: THEN deduct health insurance on your 1040 (which only reduces income tax) Health insurance isn't a business expense, it's a personal deduction. That's why it doesn't reduce SE tax. I learned this the hard way after an audit. Show this thread to your brother and save yourself the family drama!

Has anyone else heard that there's a special rule if your business is an S-corp instead of a sole proprietor? My accountant told me S-corp owners can avoid this issue completely. Something about the health insurance being a reimbursed expense instead of a deduction. Thinking about changing my business structure next year if it'll save me on self employment taxes.

Logan, you're absolutely right and your brother is wrong. As someone who's been self-employed for over 8 years, I can confirm that health insurance premiums do NOT reduce your self-employment tax liability. You'll pay the full 15.3% SE tax on your entire net profit from Schedule C, then get to deduct the health insurance premiums later on Form 1040 Schedule 1. This is one of the most common misconceptions about self-employment taxes. The health insurance deduction is what's called an "above-the-line" deduction that reduces your adjusted gross income for regular income tax purposes, but it happens after SE tax is calculated. So in your case with $750/month ($9,000/year) in premiums, you'll still pay SE tax on your full 1099 income, but you'll save on income tax by deducting those premiums. It's frustrating because it feels like it should be a business expense, but the IRS treats it as a personal deduction with special rules for self-employed folks. Show your brother IRS Publication 535 - it clearly states that health insurance premiums are not deductible as business expenses on Schedule C. You can find it on the IRS website. Good luck settling that family argument!