Everyone knows someone who hates their job. Maybe that person is you. These days, more and more people are deciding to circumvent the traditional career structure altogether and become their own boss.

Due to unemployment, job scarcity and the increasing capabilities of technology, working for yourself is a more viable career path than ever. Being self-employed has many benefits, but insurance premium costs can be an unwelcome surprise if you’re not used to paying those yourself.

Thankfully, you can deduct those premiums to reduce the sticker shock. Read below to find out how. (For related reading, see: 6 Alternatives to Health Insurance.)

Who is Eligible

Like other expenses you might have, medical insurance premiums can be deducted when you pay your taxes. Accountant Eric Nisall of AccountLancer said you have to show a profit to deduct health insurance premiums. That may be difficult for many, as some businesses take a few years to start making money.

“If the business doesn’t have profits to cover the total deduction, then the deduction will be limited to the amount of profit,” Nisall said. “Basically, the self-employed health insurance deduction cannot bring the business net income below zero.” (For related reading, see: Retirement Plans For The Self-Employed.)

Many self-employed workers are not able to deduct their premium because they’re eligible for a plan on their spouse’s insurance. This comes on a month-by-month basis. For example, if you were eligible to be on your wife’s plan for half of last year, you can only deduct six months of health insurance premiums. 

“Even if a person or his/her spouse is not part of a group health plan, if he/she is eligible to be part of a group for any given month, the self-employment deduction cannot be taken for those months,” Nisall said. (For related reading, see: 7 Mistakes to Avoid When Buying Health Insurance.)

However, if you received tax credits from the government, you are still eligible to deduct what you paid out of pocket. Long-term care insurance is also deductible on your taxes, but the IRS has limits on how much you can deduct depending on your age range. COBRA premiums are one of the few items that are not able to be deducted, even if you are self-employed and meet other criteria.

How to Deduct

The practice of deducting health insurance premiums has been around since the 1980s; in 2003, you could deduct 100% for the first time. If you want to deduct, the line to do so is on form 1040, line 29. If you take the standard deduction, you can still deduct your health insurance premiums.

“Itemizing is not a requirement to claim the deduction,” Nisall said.

Every tax season people leave money on the table by not claiming the deductions they’re owed. It can seem daunting to someone with limited tax experience, but the time it takes to learn the ins and outs is more than worth it — usually after the first year. (For more, see: 10 Tax Benefits For The Self-Employed.)

The Bottom Line

The freedom of self-employment comes at a hefty price — insurance price, that is. No matter what kind of plan you’re on or how high your premiums are, you can lessen that financial burden by deducting your medical premiums. For many, health insurance premiums can make up a hefty percentage of their budget. Compared to the cost of deducting office supplies and meals, insurance premiums can make a substantial difference in how much you have to pay in taxes on your business. (For more, see: Why Not to Use Your HSA for Current Medical Bills.)

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.