IRS Instruction 7206 – IRS Forms, Instructions, Pubs 2026 – If you’re self-employed, managing health insurance costs can be a significant expense, but the IRS offers a valuable tax break through the self-employed health insurance deduction. This deduction allows eligible individuals to reduce their taxable income by the amount paid for qualifying health insurance premiums. For the 2025 tax year, IRS Form 7206 is the key tool for calculating this deduction accurately. In this comprehensive guide, we’ll break down everything you need to know about IRS Instruction 7206, including eligibility, step-by-step instructions, limitations, and tips for maximizing your savings. Whether you’re a freelancer, small business owner, or S corporation shareholder, understanding Form 7206 can help you claim what you’re entitled to on your tax return.
What Is IRS Form 7206?
IRS Form 7206, titled “Self-Employed Health Insurance Deduction,” is a form used to calculate the amount of health insurance premiums you can deduct from your adjusted gross income. This deduction is reported on Schedule 1 (Form 1040), line 17, and covers premiums for medical, dental, vision, and qualified long-term care insurance for you, your spouse, your dependents, and even your children under age 27 at the end of 2025—regardless of whether they qualify as dependents.
Introduced as a replacement for the previous Self-Employed Health Insurance Deduction Worksheet found in Publication 535, Form 7206 provides a structured way to ensure accurate calculations, especially in complex scenarios. It’s particularly useful for those with multiple income sources or specific types of insurance. The form helps prevent overclaiming by limiting the deduction to your net earnings from self-employment, making it an essential part of tax planning for gig workers, sole proprietors, partners, and certain S corporation shareholders.
Who Qualifies for the Self-Employed Health Insurance Deduction?
Not everyone can claim this deduction—eligibility is tied to your employment status and how your insurance is set up. According to IRS guidelines, you qualify if one of the following applies:
- You are self-employed and report a net profit on Schedule C (Form 1040) for business income or Schedule F (Form 1040) for farming income.
- You are a partner in a partnership and have net earnings from self-employment reported on Schedule K-1 (Form 1065), box 14, code A.
- You used an optional method to calculate your net earnings from self-employment on Schedule SE (Form 1040).
- You received wages from an S corporation where you own more than 2% of the shares, and the corporation paid or reimbursed your health insurance premiums, which are reported as wages on your Form W-2.
Additionally, the insurance plan must be established under your business. For sole proprietors, the policy can be in the business’s name or your own. Partners may have policies in the partnership’s or their own name, with premiums potentially reported as guaranteed payments. For more-than-2% S corporation shareholders, premiums must be included in wages if reimbursed, ensuring the plan qualifies as business-established. Members of the clergy should refer to Publication 517 for special rules.
Eligibility Requirements and Key Rules
To claim the deduction, your health insurance must meet specific criteria. Qualifying coverage includes health plans purchased individually or through the Marketplace, but you cannot deduct premiums for any month you were eligible for employer-subsidized coverage—yours, your spouse’s, a dependent’s, or a child’s under age 27. This rule applies separately for long-term care insurance.
Voluntary Medicare premiums paid to secure coverage similar to private health insurance also qualify. However, if you’re a retired public safety officer, you cannot include up to $3,000 in premiums paid or reimbursed from nontaxable retirement distributions.
For those using the Health Insurance Marketplace with advance premium tax credits, consult Publication 974 for coordination rules. The deduction does not affect your self-employment tax calculation on Schedule SE, and any undeducted premiums may be claimed as itemized medical expenses on Schedule A (Form 1040) if you itemize.
How to Calculate the Self-Employed Health Insurance Deduction?
The deduction is generally limited to the lesser of your actual premiums paid or your net earnings from the business under which the insurance is established. For simple cases, you can use the worksheet in the Form 1040 instructions. However, you must use Form 7206 if:
- You have multiple sources of self-employment income subject to tax.
- You’re filing Form 2555 (Foreign Earned Income).
- You’re including qualified long-term care insurance premiums.
If you have multiple businesses or plans, complete a separate Form 7206 for each. For long-term care insurance, premiums are capped based on age at the end of 2025. Here’s a table of the 2025 limits per person:
| Age at End of 2025 | Maximum Deductible Amount |
|---|---|
| 40 or younger | $480 |
| 41–50 | $900 |
| 51–60 | $1,800 |
| 61–70 | $4,810 |
| 71 or older | $6,020 |
These limits apply to qualified long-term care contracts, which must be guaranteed renewable, have no cash surrender value, and cover only specific services for chronically ill individuals (e.g., those unable to perform at least two activities of daily living or needing supervision due to cognitive impairment, as certified by a licensed health care practitioner).
Step-by-Step Guide to Filling Out Form 7206
Filling out Form 7206 is straightforward once you gather your documents. Use a separate form for each trade or business. Here’s a line-by-line walkthrough based on IRS instructions:
- Line 1: Enter the total premiums paid in 2025 for health insurance (medical, dental, vision) established under your business for you, your spouse, dependents, or child under 27.
- Line 2: Enter qualified long-term care premiums paid, limited to the age-based amounts above.
- Line 3: Add lines 1 and 2.
- Line 4: Enter your net profit (and any other earned income) from the business under which the insurance is established. For multiple businesses, include only the relevant one here.
- Line 5: If you have multiple profitable businesses, enter the total net profits from all (from Schedule C, F, or K-1).
- Lines 6–10: These involve prorating if your coverage or eligibility changed during the year (e.g., months ineligible for the deduction).
- Line 11: For S corporation shareholders, enter Medicare wages here instead.
- Final Deduction: The form calculates the allowable amount, which is the lesser of line 3 (prorated if needed) and your net earnings.
Transfer the result to Schedule 1 (Form 1040), line 17. If aggregating long-term care across forms, ensure totals don’t exceed per-person limits.
Limitations and Special Considerations
The deduction cannot exceed your net self-employment earnings, and it’s an above-the-line adjustment, meaning you don’t need to itemize to claim it. Key limitations include:
- No deduction for months with employer-subsidized eligibility.
- For S corporations, premiums must be reported on W-2 as wages.
- Combining with Health Savings Accounts (HSAs): If you have an HDHP, HSA contributions (up to $4,300 for self-only or $8,550 for family in 2025) offer additional tax benefits, but coordinate to avoid double-dipping.
Common Mistakes to Avoid When Using Form 7206
- Overlooking Multiple Forms: If you have insurance under different businesses, forgetting separate forms can lead to errors.
- Ignoring Age Limits for Long-Term Care: Exceeding caps reduces your deduction.
- Not Prorating for Partial-Year Coverage: If eligibility changed mid-year, calculate monthly.
- Double-Claiming: Don’t include deducted amounts on Schedule A or in self-employment tax.
- Missing Reimbursements: For partners or S corp owners, ensure proper reporting on K-1 or W-2.
Recent Changes and Updates for the 2025 Tax Year
For 2025, Form 7206 remains the standard replacement for the old worksheet, with no major legislative changes noted as of November 2025. Long-term care limits have been adjusted for inflation (e.g., from prior years’ figures). Always check IRS.gov/Form7206 for the latest developments, as legislation could impact rules post-publication. Related publications include Pub. 535 (Business Expenses), Pub. 974 (Premium Tax Credit), and instructions for Form 1040.
Maximizing Your Deduction: Tips for Self-Employed Individuals
To get the most out of this deduction, keep detailed records of premiums paid and ensure your plan qualifies. Consider bundling with an HSA for extra savings, and if you’re in an S corporation, verify W-2 reporting early. Self-employed individuals can often deduct 100% of premiums, making this a powerful tool for reducing tax liability.
In conclusion, IRS Form 7206 simplifies claiming the self-employed health insurance deduction, helping you save on taxes while covering essential health costs. However, tax situations vary, so consult a tax professional or use reliable software to ensure compliance. By staying informed and organized, you can make the most of this benefit for the 2025 tax year. For the official form and instructions, visit the IRS website.