Self-Employed Health Insurance Deduction (SEHID): The Complete Guide

If you're self-employed and paying for your own health insurance, you're probably leaving thousands of dollars on the table every year.

The Self-Employed Health Insurance Deduction (SEHID) is one of the most valuable—and most misunderstood—tax benefits available to freelancers, independent contractors, and small business owners.

This guide explains everything you need to know: what it is, who qualifies, how much you can save, and most importantly, how to claim it correctly when filing taxes.

What is the Self-Employed Health Insurance Deduction (SEHID)?

SEHID allows self-employed individuals to deduct 100% of their health insurance premiums directly from their income—without itemizing deductions.

Here's what makes it special:

• Above-the-line deduction: Reduces your Adjusted Gross Income (AGI) before other calculations
• No itemization required: You can take the standard deduction AND still claim SEHID
• Reduces your MAGI: Lower MAGI increases your Premium Tax Credit eligibility
• Double benefit: Saves on income taxes AND increases ACA subsidies

Who Qualifies for SEHID?

You can claim the Self-Employed Health Insurance Deduction if you meet ALL of these requirements:

1. You Must Be Self-Employed

This includes:

• Sole proprietors (Schedule C filers)
• Independent contractors (1099 workers)
• LLC members (taxed as partnerships or sole proprietors)
• S-Corp shareholders (with >2% ownership)
• Partners in partnerships

2. You Must Have a Net Profit

Your business must show a net profit for the year. You cannot deduct more than your self-employment income.

3. The Insurance Must Be in Your Name

The health insurance policy must be established under your name or your business's name. You can cover:

• Yourself
• Your spouse
• Your dependents (children under 27)
• Children under 27 (even if not dependents)

4. You Were NOT Eligible for Employer Coverage

This is the big one. You cannot claim SEHID if either:

• You were eligible for coverage through an employer (even if you didn't enroll)
• Your spouse was eligible for coverage through their employer (and you could have been covered)

How Much Can You Deduct?

You can deduct 100% of premiums you paid for:

• Medical insurance
• Dental insurance
• Vision insurance
• Qualified long-term care insurance (subject to age-based limits)

What you CANNOT deduct:

• Premiums paid with Advance Premium Tax Credit (APTC)
• Months when you were eligible for employer coverage
• Health Savings Account (HSA) contributions (those are deducted separately)
• Out-of-pocket medical expenses like copays or prescriptions

The SEHID/PTC Circular Dependency Problem

Here's where it gets tricky. If you buy insurance through the ACA Marketplace, SEHID and Premium Tax Credit interact in a circular way:

1. SEHID reduces your MAGI
2. Lower MAGI increases your PTC eligibility
3. Higher PTC means you paid less in premiums
4. Lower premiums paid means smaller SEHID
5. Smaller SEHID increases your MAGI again...

Where to Claim SEHID on Your Tax Return

The Self-Employed Health Insurance Deduction is claimed on:

• Schedule 1 (Form 1040), Line 17
• Then transferred to Form 1040, Line 10

This reduces your AGI, which then flows through to:

• Modified Adjusted Gross Income (MAGI) for PTC calculations
• Qualified Business Income (QBI) for the 20% pass-through deduction
• Various other tax credits and phase-outs

Common SEHID Mistakes to Avoid

SEHID vs. Medical Expense Deduction

Many people confuse SEHID with the medical expense deduction (Schedule A). Here's the difference:

	SEHID	Medical Expense Deduction
Who qualifies	Self-employed only	Anyone
Amount	100% of premiums	Expenses > 7.5% AGI
Itemization required?	No	Yes (Schedule A)
Where claimed	Schedule 1, Line 17	Schedule A

Strategy: Claim SEHID first (Schedule 1). Then, if you itemize and have additional medical expenses exceeding 7.5% of your AGI, you can deduct those on Schedule A.

How to Calculate Your SEHID Correctly

There are three ways to calculate your Self-Employed Health Insurance Deduction:

Option 1: Manual Calculation (Not Recommended)

For non-ACA insurance: Simply add up all premiums you paid during the year.

For ACA insurance: Use the IRS Publication 974 iterative worksheets (5-10 iterations required).

Time required: 2-3 hours
Error risk: High

Option 2: Tax Software

Use TurboTax, H&R Block, or FreeTaxUSA. Answer questions about self-employment and health insurance.

⚠️ Warning: Most tax software does NOT correctly implement the IRS iterative method for SEHID/PTC interaction. You may need to manually override values.

Option 3: Use Our Calculator (Recommended)

We built a calculator that automates the IRS Publication 974 iterative method and calculates your exact SEHID and PTC simultaneously.

Frequently Asked Questions

Can I deduct health insurance if I have a side business?

Yes, as long as your side business shows a net profit and you're not eligible for employer coverage through your main job or spouse's job.

What if I only worked part of the year?

You can only deduct premiums for months when you were self-employed and not eligible for employer coverage. If you had a W-2 job for 6 months, you can only deduct premiums for the other 6 months.

Can S-Corp owners deduct health insurance?

Yes, but only if you own more than 2% of the company. The premiums must be included in your W-2 as wages, then you deduct them on Schedule 1.

Do I need receipts for SEHID?

Keep records of all premium payments (bank statements, insurance statements, Form 1095-A from Healthcare.gov). You don't submit them with your return, but you need them if audited.

Can I deduct Medicare premiums?

Yes, if you're self-employed and pay Medicare premiums (Parts B, C, D, or Medigap), you can deduct them using SEHID.

The Bottom Line

The Self-Employed Health Insurance Deduction is one of the most valuable tax benefits for freelancers—but only if you claim it correctly.

Key takeaways:

• SEHID lets you deduct 100% of health insurance premiums without itemizing
• It reduces your AGI AND your MAGI (which can increase ACA subsidies)
• You must have a net profit and cannot be eligible for employer coverage
• If you buy ACA insurance, you MUST use the iterative method to calculate SEHID and PTC together
• Most tax software doesn't implement this correctly—leading to overpayments or underpayments

Don't leave thousands of dollars on the table. Calculate your SEHID correctly and maximize your tax savings.