Can I Deduct COBRA Premiums If Self-Employed?

If you’re self-employed and paying for COBRA out of pocket, you can generally deduct those premiums through the Self-Employed Health Insurance Deduction. It’s an above-the-line deduction, so it reduces your adjusted gross income whether or not you itemize, and it works dollar-for-dollar up to the amount of net profit your business earned that year. Two conditions have to hold: you need net self-employment earnings, and you cannot have been eligible for a subsidized employer health plan during any month you want to claim.¹

The IRS treats COBRA premiums the same as any other health insurance premiums for tax purposes. That’s the whole reason the deduction is available — nothing in the rule turns on where the coverage came from, only on who is paying and whether the payer qualifies.

Who Qualifies

Self-employment here means sole proprietor, partner in a partnership, or shareholder owning more than 2 percent of an S corporation.¹ The business doesn’t have to be your main livelihood; a side business counts as long as it produces net earnings.

Net profit is the ceiling. Sole proprietors find that number on Schedule C, farmers on Schedule F, and partners and S corp shareholders on their Schedule K-1.² If the business runs a loss for the year, the above-the-line deduction is unavailable. The premiums don’t disappear from your return, though; they can move to Schedule A, which is covered below.

The Month-by-Month Employer Coverage Rule

This is the trap that costs people the deduction. The IRS applies the employer-coverage test monthly. For any month you were eligible to participate in a subsidized health plan maintained by any employer — yours, your spouse’s, or one covering a dependent or child under 27 — you cannot deduct COBRA premiums for that month.¹

Eligibility, not enrollment. You don’t have to sign up for the employer plan to be disqualified. Access alone is enough. If your spouse starts a job in July that offers subsidized coverage, your deductible COBRA months stop at June, even if neither of you enrolled in the new plan.¹

This bites hardest for people running a side business while holding a part-time W-2 job. If the W-2 employer offers subsidized coverage, every month of access is a lost deduction month, no matter how much of the COBRA premium the self-employment income is actually funding.

How To Calculate the Deduction

Add up the COBRA premiums you paid during the months that clear the eligibility test. That total can include medical, dental, and vision premiums, plus qualifying long-term care coverage (long-term care has age-based dollar caps, so if your COBRA plan bundles it, check the current limits before including anything). You can include premiums for yourself, your spouse, your dependents, and any child under 27 at year-end.¹

The deduction equals the lesser of that premium total or your net earnings from the business under which the insurance is established.³ Paid $12,000 in COBRA premiums against a $9,500 net profit? Your deduction is $9,500.

The calculation goes on Form 7206, which replaced the worksheet that used to sit inside Publication 535. The result flows to Schedule 1 (Form 1040), line 17, and from there to your main 1040.⁴ Because it reduces AGI, it can also improve your standing for other credits and deductions that phase out at higher income.

It Does Not Reduce Self-Employment Tax

The deduction lowers income tax. It does not lower the 15.3 percent Social Security and Medicare tax you owe as a business owner. The IRS says explicitly that you cannot subtract this deduction when figuring net earnings for self-employment tax.¹ The statute carved out one exception for tax year 2010; every year since has followed the general rule.³

Premiums You Can’t Deduct Above the Line

Two situations produce premiums that don’t fit on Form 7206: months you were disqualified by employer-plan eligibility, and premiums exceeding your net profit.

Those excess premiums can go on Schedule A with your other medical expenses if you itemize. Only the portion of total medical expenses above 7.5 percent of AGI is deductible there, so unless you had other significant medical costs the same year, the floor will often absorb the amount.⁵ The rule against double-dipping is firm: any premium you deducted on Form 7206 cannot also appear on Schedule A.³

An HSA is another option. COBRA is one of the few insurance types the IRS lets you pay with tax-free HSA distributions. The same no-double-dipping rule applies: premiums paid with tax-free HSA money cannot also be deducted on Form 7206 or Schedule A.⁶ The above-the-line deduction is usually more valuable because it directly reduces AGI, but HSA funds are a reasonable backup in a loss year when the deduction isn’t available.

If You Own More Than 2 Percent of an S Corporation

S corporation shareholders face an extra step the IRS actively enforces. The S corp must either pay your COBRA premiums directly or reimburse you, and that amount must be included in Box 1 wages on your Form W-2. It should not appear in Boxes 3 or 5, because these premiums are not subject to Social Security or Medicare withholding.⁷

You then report the W-2 wages on your personal return and claim the equivalent amount as the self-employed health insurance deduction on Schedule 1. Skip the W-2 step and the IRS will deny the deduction. It is one of the first things they check.⁷

If You Also Have Marketplace Coverage With a Premium Tax Credit

Pure COBRA and the Premium Tax Credit don’t interact, so most COBRA-only situations don’t need this section. If part of the year you had marketplace coverage with advance PTC payments, the deduction and the credit interact circularly: the deduction lowers AGI, which raises the credit, which reduces the premiums available for the deduction.⁸

Publication 974 provides an iterative worksheet: estimate the deduction, figure the credit, recalculate the deduction from the new AGI, and repeat until successive rounds differ by less than a dollar.⁹ Tax software handles this automatically. The governing rule is that the deduction for marketplace premiums cannot exceed the premiums you paid minus the PTC attributable to them, so the government’s share isn’t deducted twice.⁸

1
Internal Revenue Service. Instructions for Form 7206 – Self-Employed Health Insurance Deduction
2
Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)
3
Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses
4
Internal Revenue Service. About Form 7206, Self-Employed Health Insurance Deduction
5
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
6
Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
7
Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues
8
eCFR. 26 CFR 1.162(l)-1 – Deduction for Health Insurance Costs of Self-Employed Individuals
9
Internal Revenue Service. Publication 974, Premium Tax Credit (PTC)