Is Solo 401k EmployER matching contribution affected by self employed health insurance deduction?

[Michael16]

I'm a sole proprietor and max out my Solo 401k EmployEE (elective) deferrals ($23,500 for 2025) and contribute to the employER match.

I understand the employER match is computed at 20% of the business profit less half the self-employment tax (or $46,500 for 2025, whichever is less).

Do any self-employed health insurance deductions from Schedule 1, Line 17 affect the contribution limit for the EmployER match? TurboTax can calculate the maximum contribution to the Individual (Solo) 401k in the program, and it appears that it doesn't affect the contribution from what I can tell.

Can others confirm this? Thanks.

[ReneV4 · Accepted solution]

Correct. The IRS does not require you to subtract your health insurance deduction when calculating the "Net Earnings" available for retirement contributions. Net earnings for the purpose of retirement contributions is defined as, Net Profit, minus the deduction for 1/2 of Self-Employment Tax, minus the Retirement Contribution itself.

Health insurance is treated as an adjustment to income that happens after the self-employment income is defined for retirement purposes.

However, while the health insurance deduction doesn't reduce the limit, it can affect your ability to take the deduction if your profit is very low. For example, if you are maxing out your Solo 401(k) to the point where your remaining taxable profit is near zero, TurboTax might cap your Health Insurance Deduction instead of capping your 401(k) contribution.