IRS Form 1040: Where to Enter Your Self-Employed Health Insurance Deduction
The "Above-the-Line" Advantage
For the self-employed, the goal is simple: reduce your taxable income as much as possible. Your Self-Employed Health Insurance Deduction is the single most effective tool for this, and locating it on your tax return is key to making it work.
The deduction is taken "above the line," meaning it is an adjustment that reduces your Adjusted Gross Income (AGI) before itemized or standard deductions are considered. This is a massive tax benefit that directly lowers your income, which, in turn, can improve your eligibility for other tax credits and lower your overall tax bill.
Step 1: Calculating the Deduction on Form 7206
While the final number lands on your Form 1040, the heavy lifting of the calculation is done on a supporting schedule: IRS Form 7206, Self-Employed Health Insurance Deduction.
The Purpose of Form 7206: Form 7206 replaced the old worksheet previously found in Publication 535. Its primary purpose is to prove to the IRS that you meet the limitations of the deduction before you claim it.
You use Form 7206 to enter and check for three key financial limitations:
- Total Premiums Paid: The amount of health, dental, vision, and qualified long-term care premiums you paid for your family.
- Net Profit Cap: The total deduction is limited to the amount of net profit you reported from your business (on Schedule C or similar forms).
- Subsidy Reconciliation: If you received the Premium Tax Credit (subsidy), the amount you deduct must be reduced.
Molli’s Compliance Note: You must use Form 7206 if you have multiple sources of self-employment income, or if you are claiming a deduction for qualified long-term care insurance.
Step 2: Reporting the Final Number on Schedule 1
Once the calculation is complete on Form 7206, the final, allowable deduction amount is transferred to the main tax forms:
| Tax Form | Line Number | What is Reported Here |
|---|---|---|
| Schedule 1 (Form 1040) | Line 17 | The final, calculated amount of the Self-Employed Health Insurance Deduction. |
| Form 1040 (Main Form) | The total adjustments from Schedule 1 flow to Line 10 (Adjusted Gross Income). | The deduction directly reduces your taxable AGI, which is the line everyone cares about. |
Key Takeaway: This is why the deduction is so valuable—it is subtracted from your income before you decide whether to take the standard deduction or itemize deductions. This allows you to claim the standard deduction and still get the benefit of your full health insurance premiums.
Secure your tax deduction for the entire year. Get a quote for a Molli Health plan today and keep better records for next tax season.
