IRC Section 162(l) is entitled “Special Rules for Health Insurance Costs of Self-Employed Individuals.”
This section relates to the self-employed health insurance deduction that is taken on Schedule 1, Part II (Line 17 for 2025).
A few items to note:
- Expenses for both the taxpayer and the taxpayer’s spouse are deductible assuming the taxpayer is not “eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse.”
- The deduction cannot exceed net earnings from self-employment.
- Long-term care premiums are subject to age-banded limits.
In a memorandum from the IRS Office of Chief Counsel in July of 2012, they addressed the deductibility of Medicare Premiums under Section 162(l).
The memo states very simply that “All Medicare Parts are insurance that constitutes medical care under section 162(l).” This includes any Part B or Part D surcharge assessed due to IRMAA (Income-Related Monthly Adjustment Amount) and Medigap plans (Part G).
The inclusion of Medigap plans can be confusing as there is a separate rule stated in IRS Publication 969 that disallows tax and penalty-free distribution from Health Savings Accounts for Medigap policies.
Importantly, the self-employed health insurance deduction is taken “above the line.” This means it reduces your Adjusted Gross Income (AGI) and can be taken regardless of a taxpayer’s election to elect the standard or itemized deductions. The deduction is reported on Schedule 1 and not on Schedule C. As a result, health insurance costs do not reduce self-employment tax.