Short Answer
The 2026 self-employed health insurance deduction equals your medical, dental, and qualified long-term care premiums (LTCI capped at the age-based limit per Rev. Proc. 2025-32 section 4.27), reduced by any premium tax credit claimed per section 162(l)(7), capped at the applicable net SE income from the business under which the plan is established, and prorated for months you were eligible for a subsidized employer plan. The deduction is above-the-line on Schedule 1 (Form 1040) line 17, computed on Form 7206, and reduces income tax only - it does not reduce self-employment tax. For sole proprietors the cap is Schedule C net profit minus the deductible half of SE tax minus self-employed retirement contributions; for S-corporation shareholders owning more than 2 percent the cap is the W-2 wages the S-corp paid you.
Key Takeaways
- Statutory authority: IRC §162(l). Form: Form 7206 (replaces former Pub 535 Worksheet 6-A; Pub 535 discontinued after 2022). Reported on Schedule 1 line 17.
- Eligible filers: sole proprietors (Schedule C), partners with SE earnings, LLC members, S-corp >2% shareholders.
- Covered persons: taxpayer, spouse, dependents, and any child under 27 at year-end (dependency not required for the under-27 child).
- 2026 LTCI age limits (Rev. Proc. 2025-32 §4.27): $500 (≤40), $930 (41-50), $1,860 (51-60), $4,960 (61-70), $6,200 (>70). Limit applies per insured person.
- Cap = net SE income from the business under which the plan is established. No fixed dollar cap; premiums above the cap roll forward to nothing (no carryforward).
- Subsidized employer plan exclusion: month-by-month test under §162(l)(2)(B). Mere eligibility - not participation - voids the deduction for that month.
- §162(l)(7) requires deduction − PTC. Circular interaction with MAGI is solved by the IRS Pub 974 iterative method.
- Income tax only. The deduction does NOT reduce SE tax under Schedule SE (per §1402(a) and Rev. Rul. 91-26).
- S-corp >2% reporting trap: premiums must be included in W-2 box 1 wages (not box 3/5). Premiums paid outside the W-2 are nondeductible.
How This Calculator Works
Step 1 - Sum eligible medical, dental, and LTCI premiums
Medical and dental premiums for you, your spouse, your dependents, and children under age 27 at year-end are eligible at 100 percent of cost. Long-term care insurance premiums are eligible only up to the 2026 age-based cap under IRC §213(d)(10) per Rev. Proc. 2025-32 §4.27: $500 (age 40 or less), $930 (more than 40, not more than 50), $1,860 (more than 50, not more than 60), $4,960 (more than 60, not more than 70), $6,200 (more than 70). The cap is applied to each insured person using attained age at year-end; this calculator caps your individual LTCI input only.
Step 2 - Apply the §162(l)(7) premium tax credit reduction
Per IRC §162(l)(7) the deduction is reduced by the premium tax credit claimed under §36B for the same coverage. If you bought your Marketplace plan with APTC, enter the net PTC from Form 8962 line 24. The calculator subtracts PTC from eligible premiums before applying the income cap. The exact computation requires the IRS Pub 974 iterative method because PTC depends on MAGI, which depends on the deduction itself. Most tax software handles the loop automatically.
Step 3 - Cap at applicable net SE income
For Schedule C filers: applicable net SE income = Schedule C net profit minus the deductible half of SE tax (Schedule 1 line 15) minus self-employed retirement contributions (Schedule 1 line 16). For partners: net earnings from self-employment from the partnership. For S-corp >2% shareholders: W-2 box 1 wages the S-corp paid you. The deduction cannot exceed this cap; excess premiums become a nondeductible personal medical expense subject to the 7.5 percent AGI floor on Schedule A (rarely useful).
Step 4 - Prorate for subsidized employer plan months
Per IRC §162(l)(2)(B), the deduction is voided for any month you were eligible to participate in any subsidized health plan maintained by an employer of you, your spouse, your dependent, or your child under 27. Eligibility alone (not actual participation) triggers the exclusion. The calculator multiplies the result of Step 3 by (eligible months / 12). If you were eligible all year, the deduction is zero regardless of premium amount.
Step 5 - Compute tax savings
The deduction is above-the-line on Schedule 1 line 17. Tax savings = deduction × marginal federal income tax rate. Note that the deduction does NOT reduce self-employment tax computed on Schedule SE (per §1402(a) and Rev. Rul. 91-26) and does NOT reduce QBI for §199A purposes (QBI is computed before the §162(l) deduction). State income tax savings depend on state conformity to federal AGI.
Worked Example: Sole Proprietor at 55, $60K Net SE Income
Lisa is a 55-year-old self-employed marketing consultant. Her 2026 Schedule C net profit is $72,000. Her deductible half of SE tax is approximately $5,084 and her Solo 401(k) employee contribution is $7,000. She pays $9,600 in annual ACA Marketplace premiums (silver plan, no APTC because her MAGI sits at 410 percent FPL above the 2026 cliff). She also pays $1,200 in qualified LTCI premiums. She is not eligible for any subsidized employer plan. Her marginal federal rate is 22 percent.
Inputs
Entity typeSole prop (Schedule C)
Schedule C net profit$72,000
Less: 1/2 SE tax (Schedule 1 line 15)$5,084
Less: Solo 401(k) employee (Schedule 1 line 16)$7,000
= Applicable net SE income cap$59,916
Medical + dental premiums$9,600
LTCI premiums (Lisa is 55)$1,200
PTC claimed$0
Eligible for subsidized employer planNo (12 months)
LTCI Cap Test (Age 55, More than 50, Not More than 60)
Actual LTCI premiums paid$1,200
2026 cap at age 55 (Rev. Proc. 2025-32)$1,860
= Eligible LTCI$1,200
Section 162(l) Computation (Form 7206 logic)
Medical + dental$9,600
+ Eligible LTCI (after age cap)$1,200
= Total eligible premiums$10,800
- PTC reduction per §162(l)(7)$0
= Pre-cap deduction$10,800
Net SE income cap$59,916
Pre-proration deduction$10,800
× Eligible months / 12 (12 / 12)1.000
= Final §162(l) deduction$10,800
Tax Impact (Schedule 1 Line 17)
Above-the-line deduction$10,800
× Marginal rate (22%)22%
= Estimated federal income tax savings$2,376
SE tax savings$0 (not allowed)
QBI impact (deduction reduces AGI, not QBI)Neutral
What if Lisa had APTC? Suppose Lisa instead received $4,000 in APTC. Pre-cap eligible premiums = $10,800 - $4,000 = $6,800. Her §162(l) deduction drops to $6,800. The PTC itself is a separate refundable credit on Form 8962 line 24. Tax savings on the deduction = $6,800 × 22% = $1,496. Net subsidy = $4,000 PTC + $1,496 deduction value = $5,496 total federal help on the $9,600 premium.
S-Corp >2% variant: If Lisa instead operated as an S-corp paying herself a $50,000 W-2, the cap would be $50,000 instead of $59,916, and the entire $10,800 would still be deductible. But the $9,600 health premium must be added to Lisa's W-2 box 1 wages (not box 3/5) for the deduction to be valid. If the S-corp paid premiums but failed to include them in W-2 box 1, the §162(l) deduction is $0.
Quick Facts: 2026 Section 162(l) Numbers
2026 Long-Term Care Insurance Premium Limits (Rev. Proc. 2025-32 §4.27)
| Attained Age at Year-End |
2026 Limit per Insured |
2025 Limit (for comparison) |
| 40 or less | $500 | $480 |
| More than 40, not more than 50 | $930 | $900 |
| More than 50, not more than 60 | $1,860 | $1,800 |
| More than 60, not more than 70 | $4,960 | $4,810 |
| More than 70 | $6,200 | $6,020 |
Net SE Income Cap by Entity Type
| Entity Type |
Cap Formula |
Where Reported |
| Sole Proprietor / Single-Member LLC | Schedule C net profit − 1/2 SE tax − self-employed retirement contributions | Schedule 1 line 17 |
| Partner (Form 1065) | Net earnings from self-employment (K-1 box 14 code A) − 1/2 SE tax − SE retirement | Schedule 1 line 17 |
| Multi-Member LLC (taxed as partnership) | Same as partner | Schedule 1 line 17 |
| S-Corp Shareholder >2% | W-2 box 1 wages from the S-corp (premium must be included) | Schedule 1 line 17 |
| C-Corp Shareholder-Employee | N/A - C-corp deducts directly as business expense; no §162(l) deduction at individual level | N/A |
Practitioner Insight
The most common §162(l) error among new self-employed clients is the spouse-employer trap. Client switches from W-2 to Schedule C in March 2026, pays $14,400 in self-purchased Marketplace premiums for the year, and books a $14,400 deduction at filing time. The first IRS notice arrives 18 months later because the client's spouse had a subsidized family-coverage offer available all year - even though the spouse declined and the family enrolled separately on the Marketplace. Under §162(l)(2)(B) the eligibility alone voids the deduction for every month the spouse was eligible. The fix on the original return is to check spouse's W-2 box 14 / 1095-C for an affordable family-coverage offer before booking the deduction. For S-corp >2% clients, the second-most-common error is paying the premium personally and forgetting to include it in W-2 box 1 by year-end. IRS Notice 2008-1 is unforgiving here: premiums paid by the S-corp but not in W-2 box 1 are recharacterized as nondeductible shareholder distributions, the §162(l) deduction is denied at the individual level, and the corp gets no compensation deduction either. The remediation requires a corrected W-2c filed before April 15. Both traps are catastrophic at audit and recoverable only if caught early.
Real-World Scenario: Freelance Designer with Mid-Year Coverage Switch
Marcus is a 38-year-old freelance UI designer who left a W-2 job at the end of March 2026 to go full-time on his Schedule C consulting practice. His 2026 Schedule C net profit comes in at $90,000. Deductible half of SE tax: $6,365. SEP-IRA contribution: $16,725 (25 percent of net SE earnings after 1/2 SE tax adjustment). Applicable net SE income cap = $90,000 - $6,365 - $16,725 = $66,910.
From January 1 through March 31 Marcus was on his prior employer's subsidized group plan. From April 1 forward he bought a silver-tier ACA Marketplace plan: $11,400 annual premium for nine months ($1,267 per month), $0 APTC because his projected MAGI was above 400 percent FPL post-cliff return. He pays no LTCI. His marginal federal rate is 22 percent. His spouse is a stay-at-home parent with no separate employer offer.
Section 162(l) computation: Eligible premiums = $11,400 (medical only, no LTCI). PTC reduction = $0. Pre-cap deduction = $11,400. Net SE income cap = $66,910 (not binding). Subsidized-plan months = 3 (Jan-Mar); eligible months = 9 (Apr-Dec). Prorated deduction = $11,400 × (9/12) = $8,550. Wait - this is the trap. The proration is not premiums times months; it is the deduction calculated only for months when not eligible for the employer plan. Since Marcus paid the entire $11,400 for the April-December nine-month period (and zero premiums for Jan-Mar when he was on employer coverage), the deduction is the full $11,400 - the proration in §162(l)(2)(B) applies to months he was eligible for the employer plan, not to total annual premiums. He had zero eligibility from April forward, so all nine months of premiums qualify.
Result on Schedule 1 line 17: $11,400 deduction. Federal tax savings = $11,400 × 22% = $2,508. SE tax savings = $0. The calculator's "Partial" subsidized-plan flag triggers the proration logic; in Marcus's case the proration produces the same answer because he timed premium payment to align with non-eligibility months. If he had instead paid the full $14,400 (12 months at $1,200) including the three employer-coverage months, only the nine non-eligibility months ($10,800) would deduct - the three employer-eligible months ($3,600) would not.
When This Calculator Does Not Cover Your Situation
- Multiple businesses with separate plans: If you operate two or more businesses each with its own health plan, you must use a separate Form 7206 per business and the net SE income cap applies separately to each. The calculator computes a single-business case only.
- Iterative PTC calculation: If you bought Marketplace coverage with APTC, the exact deduction requires solving the circular interaction with MAGI per IRS Pub 974 (Iterative Calculation Method or Alternative Calculation Method). The calculator subtracts PTC linearly; for an APTC household the final figure may shift by a few hundred dollars after iteration. Use tax software or work the Pub 974 worksheet for the precise number.
- Mid-year status change: Conversion from S-corp to sole prop (or vice versa) mid-year requires splitting the deduction across the two entity periods and applying the cap separately to each. The calculator assumes a single entity status for the full year.
- Self-employed spouse: If both spouses are self-employed and both pay premiums, the rules are applied separately to each spouse using each spouse's own business and cap. The household total deduction is the sum of the two individual computations.
- Net SE loss: If Schedule C shows a net loss, the applicable cap is zero and the §162(l) deduction is $0 for the year. Premiums become a personal medical expense deductible only on Schedule A above the 7.5 percent AGI floor (which itself is generally not useful for a loss-year household).
- C-corp shareholder-employees: A C-corp shareholder-employee does not use §162(l). The C-corp deducts premiums as a §162 business expense, and the employee receives a tax-free fringe benefit under §106. The calculator does not apply.
- ICHRA / QSEHRA reimbursements: Premiums reimbursed by an Individual Coverage HRA or Qualified Small Employer HRA are excluded from income under §106 and are not eligible for the §162(l) deduction. Use the reimbursed amount only as a non-deductible offset.
FAQ: Self-Employed Health Insurance Deduction
What is the self-employed health insurance deduction?
The self-employed health insurance deduction under IRC section 162(l) is an above-the-line deduction for health insurance premiums paid by a self-employed taxpayer for the taxpayer, spouse, dependents, and children under age 27. It is reported on Schedule 1 (Form 1040) line 17 and reduces adjusted gross income (AGI) before the standard deduction or itemized deductions are applied. Form 7206 (Rev. 2024) replaced the former Publication 535 Worksheet 6-A and is the official computation form. Eligible filers include sole proprietors filing Schedule C, partners receiving guaranteed payments or distributive share of partnership SE income, LLC members taxed as sole proprietors or partnerships, and S-corporation shareholders owning more than 2 percent of the stock.
What is the deduction limit?
The deduction is limited to the net earnings from the business under which the health plan is established. For a sole proprietor that ceiling is Schedule C net profit minus the deductible half of self-employment tax minus self-employed retirement plan contributions (Solo 401(k), SEP, SIMPLE) deducted on Schedule 1 line 16. For an S-corporation shareholder owning more than 2 percent of the stock, the ceiling is the W-2 wages the S-corp paid to that shareholder. For a partner the ceiling is net earnings from self-employment from the partnership. There is no fixed dollar cap - if premiums are $14,000 and the applicable net SE income is $50,000, the full $14,000 is deductible.
Can I deduct long-term care insurance premiums?
Yes, qualified long-term care insurance premiums are deductible under IRC section 162(l), but only up to the age-based limits in section 213(d)(10). For 2026, the limits per Rev. Proc. 2025-32 section 4.27 are: $500 if attained age is 40 or less, $930 if more than 40 but not more than 50, $1,860 if more than 50 but not more than 60, $4,960 if more than 60 but not more than 70, and $6,200 if more than 70. The limit is applied per insured person using attained age at the close of the tax year. A married couple applies the limit separately for each spouse. Medical and dental insurance premiums have no fixed dollar cap - only the net SE income ceiling and section 162(l)(7) PTC reduction apply.
What is the subsidized employer plan exclusion?
IRC section 162(l)(2)(B) blocks the deduction for any month during which the self-employed taxpayer is eligible to participate in any subsidized health plan maintained by an employer of the taxpayer, the taxpayer's spouse, the taxpayer's dependent, or any child of the taxpayer who has not attained age 27 at the close of the tax year. The exclusion is tested month-by-month. Mere eligibility - not actual participation - voids the deduction for that month. If your spouse's employer offered subsidized family coverage that you declined, your section 162(l) deduction is zero for every month you were eligible to enroll. The deduction may still be available for the months you were not eligible (e.g., before the spouse started the new job or after enrollment closed for the year).
How does the premium tax credit interact with this deduction?
IRC section 162(l)(7) requires the deduction to be reduced by the amount of the premium tax credit (PTC) claimed for the same coverage. You cannot deduct premiums that the federal government already paid through PTC. The interaction is circular: the deduction depends on PTC, PTC depends on MAGI, MAGI depends on the deduction. IRS Publication 974 provides an iterative method (the Iterative Calculation Method) to solve the loop, and qualifying taxpayers may also use the simpler Alternative Calculation Method when their plan year matches the tax year. Most tax software handles the circularity automatically. The calculator above asks for the PTC claimed as a single net input - input zero if you did not buy on the ACA Marketplace, or input the actual PTC from Form 8962 line 24.
Can I claim this if I am an S-corporation shareholder?
Yes if you own more than 2 percent of the S-corp stock. The mechanics are different from a sole proprietor: the S-corp pays the health insurance premium directly, includes the premium amount in your W-2 box 1 wages (but not box 3 SS wages or box 5 Medicare wages, per IRS Notice 2008-1), and you then claim the section 162(l) deduction on your personal Form 1040 Schedule 1 line 17 limited to the W-2 wages the S-corp paid you. The plan must be established in the name of the S-corp or in the shareholder's name if the S-corp reimburses (with the reimbursement included in W-2). Failing to include the premium on the W-2 voids the section 162(l) deduction entirely - the IRS treats premiums paid outside the W-2 reporting as nondeductible distributions.
Can I include premiums for my spouse and children?
Yes. IRC section 162(l)(1)(D) permits the deduction for premiums covering the taxpayer, the taxpayer's spouse, the taxpayer's dependents, and any child of the taxpayer who has not attained age 27 at the close of the taxable year. The child does not need to be a dependent - a 24-year-old non-dependent child still on the parent's health plan qualifies. Cohabitating partners who are not legal spouses do not qualify. Same-sex married couples qualify on the same basis as different-sex married couples post-Obergefell. Stepchildren and adopted children qualify on the same basis as biological children.
Does this deduction reduce self-employment tax?
No. The section 162(l) deduction reduces income tax only - it does not reduce the 15.3 percent self-employment tax computed on Schedule SE. Health insurance premiums are not a business expense under Treas. Reg. section 1.162-1; they are a personal expense converted to an above-the-line adjustment by section 162(l). The deduction also does not reduce qualified business income (QBI) for section 199A purposes - QBI is computed from net business income before the section 162(l) deduction. For practitioners, the practical effect is that self-employed taxpayers save federal and state income tax on the premium amount but still pay full FICA-equivalent SE tax. This contrasts with employer-paid premiums, which are excluded from both income tax and FICA wages under IRC section 106.
What form do I file to claim the deduction?
For tax year 2025 and later, use Form 7206 (Self-Employed Health Insurance Deduction). Form 7206 was introduced for tax year 2023 and replaced the worksheet that was formerly in Publication 535 chapter 6. The form computes the section 162(l) deduction line-by-line and walks through the net SE income cap, the PTC reduction under section 162(l)(7), and the long-term care insurance age limits. The final deduction amount transfers to Schedule 1 (Form 1040) line 17. Use a separate Form 7206 for each business if you have more than one trade or business with its own health plan. Publication 974 is the companion publication for the PTC interaction.
Is Publication 535 still the authority?
No. IRS Publication 535 (Business Expenses) was discontinued after the 2022 revision. The self-employed health insurance deduction Worksheet 6-A that used to be in Publication 535 chapter 6 is now Form 7206. For the section 162(l) deduction the current authority chain is: IRC section 162(l), Treasury Regulations section 1.162(l)-1, Form 7206 and its 2025 instructions (irs.gov/instructions/i7206), Publication 974 for the PTC interaction, and Revenue Procedure 2025-32 section 4.27 for the 2026 long-term care insurance age limits. Older guidance still citing Pub 535 should be updated to Form 7206.
Decision Step: How Should You Approach the Section 162(l) Deduction?
Route A - Sole Prop with Marketplace Coverage and APTC
Run the calculator with your PTC from Form 8962 line 24. The deduction equals premiums − PTC, capped at net SE income. For precision on the circular MAGI interaction, use tax software or the Pub 974 iterative method. Read the Self-Employed Health Insurance Deduction Guide for the iterative method walkthrough. Run the Premium Tax Credit Calculator first to size your PTC under the 2026 cliff rules.
Route B - S-Corp >2% Shareholder
The S-corp must pay the premiums (directly or via reimbursement) AND include the amount in your W-2 box 1 wages by year-end - no W-2 inclusion means no §162(l) deduction. Coordinate with your payroll provider in November-December to add the year-to-date premium to the final W-2. Cap = W-2 box 1 from the S-corp. Read the guide for the IRS Notice 2008-1 reporting walkthrough.
Route C - Spouse Has Subsidized Employer Coverage Available
You are blocked from the §162(l) deduction for every month your spouse is eligible for their employer's subsidized plan (regardless of whether the spouse enrolls). Check spouse's 1095-C box 14 / 15 and HR documentation before claiming. The same applies for a dependent or child under 27 who is eligible for their own employer's subsidized plan. If both spouses' employer offers are unavailable for the entire year, your deduction stands. If partial, prorate using the calculator's "Partial" subsidized-plan flag.
Route D - Net SE Loss Year
If your business shows a net loss in 2026, the applicable cap is zero and the §162(l) deduction is $0 - even if you paid full premiums. Premiums become a personal medical expense deductible only on Schedule A above the 7.5 percent AGI floor, which is rarely useful in a loss year. Track premiums in your workpapers but do not file Form 7206 with a zero result; cross-check that next year's profit calc captures the full deduction once profitability returns. There is no carryforward.
This calculator is for educational and illustrative purposes only. It does not constitute tax, legal, or financial advice. Section 162(l) involves entity-specific cap calculations, mid-year changes, the circular interaction with PTC under section 162(l)(7) and IRS Pub 974, and the month-by-month subsidized employer plan test that this tool does not fully model. Multiple businesses, ICHRA / QSEHRA arrangements, C-corp shareholder-employee scenarios, and the family-glitch interaction with PTC eligibility are outside scope. Consult a qualified tax professional and complete Form 7206 with your tax software before filing Schedule 1 line 17. Tax laws are subject to change.