When you go independent, the employer-sponsored health plan disappears. You're now paying premiums out of pocket — and they're not cheap. A solo marketplace plan can easily run $400–$700/month, and a family plan can top $1,500.
Here's what most contractors don't know: the IRS lets self-employed people deduct 100% of those premiums. It's one of the best tax breaks available to 1099 workers, and it gets missed constantly.
How the Deduction Works
The self-employed health insurance deduction lives on Line 17 of Schedule 1 (Form 1040). It's an above-the-line deduction, which means it reduces your Adjusted Gross Income (AGI) directly — you don't have to itemize to claim it.
What makes this particularly valuable: reducing your AGI can also trigger other benefits. Lower AGI can qualify you for better marketplace health insurance subsidies (Premium Tax Credits), make you eligible for HSA contribution deductions, and reduce your exposure to the net investment income tax.
Eligible premiums include:
- Medical insurance for yourself, your spouse, and dependents
- Dental and vision insurance
- Long-term care insurance (subject to age-based limits)
What's not deductible this way: premiums for periods when you or your spouse were eligible for employer-sponsored coverage. That's the one catch — if your spouse has access to a plan through their employer, you can't take this deduction for coverage you could have gotten through them.
The Income Limit
The deduction is limited to your net business income. If your business earned $30,000 and your premiums totaled $9,000, you can deduct $9,000. If your business earned $6,000 and your premiums totaled $9,000, you can only deduct $6,000.
Your Coverage Options
Marketplace plans (ACA): If you're under 400% of the federal poverty level, you may qualify for premium subsidies that can dramatically reduce your cost. Subsidies are based on your net income after deductions, not gross revenue — so your SE deductions actually help here too.
COBRA: If you left a W-2 job recently, you can keep your employer's plan for up to 18 months. The catch is you're now paying the full premium plus a 2% administrative fee — the employer contribution you didn't notice is now your problem. COBRA is often the most expensive option, but it preserves continuity of care and keeps your same network.
Spouse's employer plan: If your spouse has employer-sponsored coverage and you're eligible to be added, this is almost always the cheapest option. One caveat: you cannot take the self-employed health insurance deduction for premiums paid through a spouse's employer plan.
Professional associations: Some trade groups and professional associations offer group plans to members. Quality varies, but it's worth checking if you're in an industry with an active association.
The HSA Advantage
If you enroll in a High Deductible Health Plan (HDHP) — generally any plan with a deductible of $1,650+ for individuals in 2026 — you're eligible for a Health Savings Account. The HSA triple tax advantage is the best deal in the tax code:
- Contributions are tax-deductible (or pre-tax if through payroll, though that doesn't apply here)
- Growth is tax-free
- Withdrawals for qualified medical expenses are tax-free
For 2026, you can contribute up to $4,300 for self-only coverage or $8,550 for a family plan. And unlike an FSA, the money rolls over indefinitely. Many people use HSAs as a secondary retirement account — pay medical expenses out of pocket now, let the HSA compound, and draw it tax-free for healthcare in retirement.
What This Is Worth in Real Numbers
Say you're a solo contractor earning $85,000 in revenue, netting $70,000 after business expenses. You pay $550/month in health insurance premiums — $6,600/year.
With the self-employed health insurance deduction:
- Your taxable income drops to $63,400
- At a marginal rate of 22%, that's roughly $1,450 back in federal tax alone
- Your state tax savings are on top of that
The deduction doesn't just offset the cost of coverage. At meaningful income levels, it puts a significant portion of your premium back in your pocket.
Want to see how health insurance costs and deductions change your actual take-home versus a W-2 job? The Freelance vs Employee Calculator runs the full comparison — SE tax, FICA, benefits valuation, and all.