I am eligible for health insurance through my former employer but I pay 100% of the premiums (not Cobra). I am now self employed. Can I deduct those premiums I pay?

[Anonymous]

I receive a 1095-C with box 1G which says: not a full time employee for any part of 2020 but enrolled in self insured employee sponsored coverage (12 months)

[MarilynG1]

Yes, you can deduct Health Insurance Premiums you paid yourself as a Self-Employment Expense.

Click this link for more info on How to Enter Self Employed Health Insurance. 

If your self-employment activity is a sole proprietorship that generated a tax loss for the year, you’re not allowed to claim the deduction because your deduction can’t exceed the earned income you collect from your business. This is known as the earned income limitation rule.

[hereinhelena]

I would like to verify that this is true, as I have the same situation and would very much prefer to take the Scheule-1, Form 7206 deduction, but I read that I am not eligible.  My circumstance is as follows:

1.  As a retiree (state government), I pay the full premium ($27,000 +) on the state plan (non-COBRA), which I elected to stay on with.  I received 1095-C with code "1G".  The payments are deducted from my pension.

2.  I am 50-50 partners (my wife and myself) in a Schedule-E Partnership which operates profitably, in excess of the health insurance premium amounts.

The instruction for form 7206 have two series of criteria:

1.  Four bullets, of which #2 applies to me (see "A" below)

2.  3-bullets, of which bullet #2 could apply to me (see "B" below)

A.  I meet the first criterion on the instructions for Form 7206 (net earnings reported on Schedule K-1, Form 1065, box 14, Code-A).

B.  I do not meet the 2nd criterion since the partnership does not reimburse me "and report the premium amounts on Schedule K-1 (form 1065) as guaranteed payments to be included in my gross income".

I presume that I could have the partnership make guaranteed payments and therefore satisfy "B" (above), but it is my understanding that I am still ineligible for the deduction per the language on P.2 of the Form 7206 instructions "You can't take the deduction for any month you were eligible to participate in any employer subsidized health plan ..." since the State plan (or any 50+ employee plan) would be considered to be "employer subsidized", even if I pay 100% of the premiums.

If anyone can clarify, I would very much appreciate it.  It appears that the only avenue for deduction may be via Schedule-A, which is rather disadvantageous. 

[MonikaK1]

A health insurance plan you are covered by as a retiree can qualify as self-employed health insurance, as long as the coverage wasn't paid by nontaxable retirement distributions. You could not use the insurance for an active employee as that would be an employer plan.

Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer can’t be used to figure the deduction.

But, don't include amounts for any month you were eligible to participate in a health plan subsidized by your employer or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2025. This is discussed in the Instructions for Form 7206.

See this TurboTax tips article for more information about the self-employed health insurance deduction.

@hereinhelena 

[hereinhelena]

MonikaK1 - Thank you so much for the response - but I would still like some clarification:  The following applies:

1.  I am not eligible for Medicare

2.  I do pay the full cost for my health insurance that is made available for purchase from my ex-employer (state government).  There is no contribution from the state, so I don't believe it is "subsidized".

3.  I am "self-employed" (50-50 partner in an LLC that files a 1065 & issues K-1's).  The K-1 net income does not include a deduction for health insurance, and there is no corresponding taxable "guaranteed payment" added in either.

4.  The Turbotax (Home & Business) "forms view" for Form 7206 says to "Enter the total amount paid ... for insurance coverage established under your business".

The simplest solution is to enter the health care deduction on Form 7206 & on Schedule-1, Line-17.  I could achieve a very similar result (since the other partner is my spouse & we file jointly) by having the business deduct this as an expense and then paying me "guaranteed payments" of that same amount (which would be reflected on the K-1s for my wife and I), but this solution likely would not work for the past (2025) year.  I am confident that I meet the intent of the deduction (self-employed, paying full cost of insurance with post-tax dollars, etc.), but I don't know if I have "checked all of the boxes" since I am not sure whether the insurance policy can be considered to be "established under your business".

In summary - can I consider this to be "established under your business", and therefore eligible for the Schedule-1 deduction?

[MonikaK1]

From the IRS Instructions for Form 7206:

The insurance plan must be established, or considered to be established, as discussed in the following bullets, under your business.

• For self-employed individuals filing a Schedule C (Form 1040) or Schedule F (Form 1040), a policy can be either in the name of the business or in the name of the individual.
• For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or the partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan won’t be considered to be established under your business.

Based on the facts as you stated, assuming the policy is in your name, the qualifications are met to consider it established under your business.

@hereinhelena 

[hereinhelena]

MonikaK1 - Thank you again for your response.  I am filing Schedule-E, which I believe would have similar requirements to Schedules C or F.  Your two bullets make perfect sense, but I am still not sure about the last sentence.

Note that I paid the insurance myself & the business did not make explicit Guaranteed Payments, although the net income is sufficient to pay the health insurance.  As such the payments are not reported on K-1, except to the extent that the net income is not reduced by the payment amount.  As such, it seems that perhaps I do not meet the "established under your business" requirement.  If you can confirm that I do - than all is good.  If not - I will have a much larger tax-bill ($27k of additional taxable income).

[hereinhelena]

MonikaK1 -

Would the following procedure allow me to take the deduction and satisfy the Guaranteed Payments requirement:

As it stands now, my K-1 is identical to my wife's (the other partner) and shows the business Net in Line-1 and Distributions on Line-19 (Code-A).  The distributions all went into a joint (my wife and I) bank account.  

I believe this solution works:  I amend the 1065/K-1's so that the amount of the health insurance is deducted from the business net (K-1, Box-1).  This would allocate 50-50 to my wife and I.  I then include the health insurance on my K-1 (Boxes 4a and 4c).  The net result is much the same, but I have now made guaranteed payments.  There are a few ripple items that make this less advantageous than just deducting the full amount on Schedule-1.  These ripple items are a reduction in the QBI deduction (due to the lower net), and also a reduction in the deductible amount of the SEP-IRA contributions that the business already made.  It does, however, seem to be the correct path.  

In summary, do you concur that I need to have the full health insurance contribution amount identified as a "guaranteed payment" on my K-1 (with a corresponding reduction in the business net earnings that is allocated 50-50 to my wife and I)?

[MonikaK1]

Yes, showing the health insurance premiums as guaranteed payments, either representing direct payment from the partnership or for reimbursement for your paying the premiums, would satisfy the requirements for the plan to be "considered to be established" under your business.

As stated in the Instructions for Form 7206, for partners, in order for the insurance plan to be established or considered to be established under your business:

You can either pay the premiums yourself or the partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. 

However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan won’t be considered to be established under your business.

[hereinhelena]

MonikaK1:

Your answer makes sense and tracks with my understanding. 

Thank you for your patience - I believe you have answered my questions.