Tax year 2026 · United States federal
The health insurance deduction
Health premiums go on Schedule 1, not Schedule C, so they cut income tax only — never self-employment tax. irs.gov
That single placement is worth thousands of dollars a year and almost every article about this deduction skips it, because “100% deductible” is technically true and reads better than the truth.
What the placement costs
Self-employment tax is computed on Schedule C net profit. irs.gov The health insurance deduction is claimed afterwards, on Schedule 1 line 17, via Form 7206. irs.gov By the time it applies, the 15.3% has already been calculated on a number it did not reduce.
Here is the same money spent, routed two ways:
| Net profit | As a business expense | As a Schedule 1 adjustment | The adjustment is worth |
|---|---|---|---|
| $40,000 | $230.51 | $96.00 | 42% |
| $60,000 | $230.51 | $96.00 | 42% |
| $100,000 | $304.86 | $176.00 | 58% |
| $150,000 | $304.87 | $176.00 | 58% |
| $250,000 | $373.24 | $342.71 | 92% |
The last column is the one to keep. A dollar of premium is worth roughly six-tenths of a dollar of office rent, and the difference is not a rounding error.
Why it is not simply “minus the self-employment tax”
This is the part I got wrong first, and it is worth showing because the naive version is what most explanations give.
The instinct is that the business expense wins by exactly the self-employment tax it saves. It does not. The expense also shrinks the self-employment tax it just saved, and half of that was itself an above-the-line deduction irs.gov — so a business expense reduces adjusted gross income by less than its face value, while the premium reduces it by the full amount.
So the expense’s advantage is the self-employment tax minus the income tax it hands back. Both columns come from the same engine the calculator on this page runs.
The reason $176 is not $220
At $100,000 of profit a single filer is in the 22% bracket, irs.gov so $1,000 off taxable income should be worth $220. It is worth $176, and the missing $44 is the qualified business income deduction.
At this income the QBI deduction is capped at 20% of taxable income rather than 20% of qualified business income. irs.gov Cut taxable income by a dollar and the cap follows it down, handing twenty cents back. Eighty cents at 22% is $176.
This applies to every above-the-line deduction, not just this one. Retirement contributions are governed by the same effect, which is why a solo 401(k) contribution at this income level is worth less than the bracket implies.
Two rules that disqualify people who qualify on paper
The employer-plan test, applied month by month. You cannot claim the deduction for any month you were eligible to participate in a subsidised health plan through your own employer or your spouse’s. irs.gov Eligible, not enrolled — declining the coverage does not restore the deduction.
The month-by-month part is what catches people. A spouse who starts a job with benefits in September does not cost you the whole year; they cost you four months of it. The deduction has to be prorated, and a single annual premium figure entered on the form is wrong in that year.
The net profit ceiling. The deduction cannot exceed net profit from the business the plan is established under. irs.gov A bad year does not carry the excess forward here.
What the premium has to cover
Medical, dental and qualified long-term care premiums all count, for you, your spouse, your dependants, and any child who was under 27 at the end of the year — whether or not that child is your dependant. irs.gov
The under-27 rule is unusually generous and routinely missed. A 25-year-old on their own policy is deductible on your return if you pay the premium.
Your own numbers
Each quarterly payment
$3,486
- Q1$3,486.35
- Q2$3,486.35
- Q3$3,486.35
- Q4$3,486.36
- Net profit
- $75,000
- Self-employment tax
- $10,597
- Federal income tax
- $4,898
- QBI deduction
- −$10,720
- Total for the year
- $15,495
- Effective rate on profit
- 20.7%
- What you keep
- $59,505
About $1,291 a month set aside, if that is easier to hold to than four lump sums.
State tax not included. State income tax for is not included in this figure. The federal number above is complete; your total liability will be higher by whatever charges. See which states are covered at /state-taxes/, or check your state's revenue department for its current rate. What this site covers, state by state.
Where this changes the decision
Because the deduction never touches self-employment tax, “get the write-off” is a weaker argument for a more expensive plan than it looks.
That is still a real subsidy, and it is roughly half of what a Schedule C purchase of the same size returns. The gap is the thing a marketing page for a health plan will not draw to your attention.
The S-corp election changes this calculation, because premiums paid through payroll are treated differently. That comparison belongs with the entity decision rather than here, and this site will not have it until the breakeven calculator can show the honest answer for your numbers rather than the flattering one.
Where to stop and ask
Two cases genuinely need a preparer. If you had marketplace coverage with an advance premium tax credit, the deduction and the credit are circular — each changes the other — and the IRS publishes an iterative method for resolving it. And if you operate through more than one business, which one the plan is established under decides the ceiling.