SE Health Insurance Deduction

Step 1 — IRC §162(l) — Self-employed health insurance deduction

100% of premiums deductible from gross income (above-the-line, Form 1040 Schedule 1)

Medical $7,200 + Dental $600 + Vision $200

= $8,000 total medical/dental/vision

IRC §162(l) allows self-employed individuals to deduct 100% of health insurance premiums for themselves, their spouse, and dependents. This is an above-the-line deduction — it reduces AGI, not just taxable income. It does NOT require itemizing.

Step 2 — Long-term care premiums (age-based IRS limit)

ltcDeductible = min(ltcPremiums, IRS_AgeLimit[age])

min($0, $880) for age ≤ 50

= $0

2024 LTC limits (Rev. Proc. 2023-34): age ≤40 = $470 | 41–50 = $880 | 51–60 = $1,760 | 61–70 = $4,710 | 71+ = $5,880. These are per-person annual caps. LTC premiums for a chronically ill individual qualify.

Step 3 — Net self-employment income cap

deductible = min(totalPremiums, netSEIncome)

min($8,000, $80,000) = $8,000

= $8,000 deductible

The deduction cannot exceed the net profit from the business that established the plan. "Net SE income" here means net profit after the self-employment tax half-deduction (IRC §162(l)(2)(A)). Full premium amount is within the income cap.

Step 4 — Marketplace subsidy interaction

If APTC received → §162(l) deduction is disallowed for subsidized months

No marketplace subsidies received — full deduction applies

= Deduction confirmed: $8,000

You cannot claim both the §162(l) deduction and the Premium Tax Credit (Form 8962) for the same coverage months. If you received Advance Premium Tax Credits, the deduction is disallowed for those months (IRC §162(l)(2)(B)).

Step 5 — AGI reduction and tax savings

taxSavings = deductible × (federalRate + stateRate)

$8,000 × (22% + 5%) = $2,160

= $2,160 total tax savings

Federal savings at 22% bracket: $1,760. State estimate at 5%: $400. These rates are illustrative — use your actual marginal rates. The deduction is worth more in higher tax brackets.

Step 6 — Effective monthly premium after deduction

effectiveMonthly = (totalPremiums − taxSavings) / 12

($8,000 − $2,160) / 12

= $487/mo effective cost

Without the deduction you'd pay $667/mo. The deduction brings your after-tax effective cost to $487/mo — a 27% reduction in your real premium outlay.

Step 7 — Combined AGI picture with ½ SE tax

combinedAGIReduction = healthInsuranceDeduction + halfSETaxDeduction

$8,000 + $5,652 (est. ½ SE tax)

= $13,652 total AGI reduction

Self-employed individuals get two above-the-line deductions: (1) ½ of SE tax (IRC §164(f)) ≈ $5,652 on $80,000 net SE income, and (2) this health insurance deduction. Together they reduce your AGI by $13,652 before any itemized/standard deduction.