Health Insurance Deductions for Self-Employed Montanans
Health insurance is one of the biggest expenses for self-employed people. Here's how to deduct it correctly depending on how your business is structured.
Sole proprietors and single-member LLCs
Deduct 100% of health, dental, vision, and qualifying long-term care premiums as an above-the-line adjustment on Schedule 1 (Form 1040).
Cap: the deduction can't exceed your net self-employment income from the business.
Applies to premiums for you, your spouse, dependents, and children under 27.
S-corp owners (more than 2% shareholders)
The S-corp pays the health insurance premiums.
The premiums are added to your W-2 as Box 1 wages (increasing federal + state taxable wages) but NOT to Box 3/5 (no FICA).
You then deduct the premiums above the line on your personal return via the self-employed health insurance deduction.
Skip this reporting on the W-2 and you lose the deduction entirely — this is the #1 preparation error for S-corp owners.
Health Savings Accounts (HSAs)
If you're on a qualifying high-deductible health plan, contribute to an HSA — deductible above the line, grows tax-free, and comes out tax-free for medical expenses.
2025 limits: $4,300 self / $8,550 family, plus $1,000 catch-up at age 55+.
HSA contributions on top of the premium deduction — they don't compete.
Medicare premiums
Self-employed people can deduct Medicare Part B, Part D, and Medigap premiums under the self-employed health insurance deduction.
Same rules for S-corp owners: the premiums have to be paid or reimbursed by the S-corp and reported on W-2 wages.
Common mistakes
Deducting premiums as a Schedule C expense (they belong on Schedule 1).
S-corp forgets to add premiums to owner W-2 — kills the deduction.
Deducting more than net self-employment income — capped.
Deducting spouse's employer-plan-eligible premiums — not allowed.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.