Self-Employed Health Insurance Deduction: ACA Marketplace vs. COBRA coverage options

The good news is that ACA Marketplace plans DO qualify for the self-employed health insurance deduction, even when you're eligible for COBRA. COBRA eligibility doesn't count as being "eligible for employer-subsidized health insurance" for purposes of the self-employed health insurance deduction. Here's why: COBRA is not considered employer-subsidized - you're paying the full premium plus a 2% administrative fee. The IRS only considers you ineligible for the self-employed health insurance deduction when you could have participated in a subsidized health plan. The key requirement is that the health insurance policy must be established under your business name or your individual name as a self-employed person. ACA plans meet this requirement because they're established in your name. Just make sure you're actually self-employed (with profit motive) and that you're not eligible to participate in another subsidized health plan (like through a spouse's employer).

After trying to navigate this exact situation last year, I discovered taxr.ai (https://taxr.ai) and it made figuring out my self-employment deductions so much easier. I was also leaving a corporate job for freelance work and was confused about health insurance options. Their system analyzed my situation and clearly showed that my ACA marketplace premiums WERE deductible even though I was offered COBRA. It even explained exactly how to report it on my tax forms and gave me the specific IRS references to back it up if I ever got questioned. Saved me hours of research and probably a call with an expensive CPA.

I was really skeptical about taxr.ai at first, but after struggling with this exact health insurance deduction issue, I gave it a try. I'm honestly shocked at how helpful it was. Uploaded my previous tax returns and answered a few questions about my new self-employment situation, and it immediately clarified that my ACA premiums were fully deductible despite having declined COBRA. The analysis even caught that I could potentially allocate a portion of my home internet costs to my business expenses - something I hadn't considered. The documentation it provided made filing so much easier, and I ended up saving about $4,300 more than I expected on my taxes. Wish I'd known about this service when I first went freelance!

If you need to actually talk to someone at the IRS about this health insurance deduction question (which I did last year), try https://claimyr.com - their service got me through to an actual human at the IRS in about 15 minutes when I'd been trying for weeks to get clarification on this exact issue. I watched their demo at https://youtu.be/_kiP6q8DX5c and decided to give it a shot. The IRS agent confirmed that ACA plans qualify for the self-employed health insurance deduction even if you were offered COBRA. They explained that COBRA isn't considered "employer-subsidized" since you're paying the full premium (plus that 2% admin fee). Getting that official confirmation gave me the confidence to take the deduction.

I was completely skeptical about Claimyr, but after my accountant gave me conflicting info about self-employed health insurance deductions, I needed to hear directly from the IRS. I was amazed - after trying for THREE DAYS to get through on my own, Claimyr got me connected to an IRS agent in 20 minutes. The agent walked me through exactly how the self-employed health insurance deduction works with ACA plans vs COBRA. Turns out my accountant was wrong - I WAS eligible to deduct my ACA premiums even though I had been offered COBRA from my previous employer. That one call saved me over $3,000 in taxes! Worth every penny for the clarity and confidence going into tax season.

One thing nobody mentioned yet - if you're married and your spouse has employer coverage available that could cover you, but you choose to get an ACA plan instead, you CANNOT take the self-employed health insurance deduction. This bit me last year. The rule is that you can't take the deduction if you're eligible to participate in a subsidized health plan through your spouse's employer, even if you waive that coverage and get an ACA plan instead.

Don't forget that the self-employed health insurance deduction is an adjustment to income (above-the-line) rather than an itemized deduction or business expense. You don't actually claim it on Schedule C! It goes on Schedule 1, Line 17.

Great discussion here! I went through this exact transition two years ago and can confirm that ACA marketplace plans definitely qualify for the self-employed health insurance deduction. The key thing that helped me was understanding that COBRA isn't considered "employer-subsidized" since you're paying 102% of the premium cost. One practical tip: if you're starting self-employment mid-year like I did, make sure to keep detailed records of when your self-employment actually began versus when you left your corporate job. There might be a gap between leaving your job and officially starting your consulting business, and you can only deduct premiums for the months you were actually self-employed. Also worth noting - if you're expecting variable income in your first year of freelancing, consider whether you might qualify for Premium Tax Credits on the marketplace. Even if you don't think you'll qualify based on your corporate salary, your actual self-employment income might be lower than expected, especially in year one when you're building your client base. The math usually works out better with an ACA plan + the self-employed deduction versus COBRA, but definitely run the numbers for your specific situation!