Can I Deduct Medical Expenses on Schedule C?

A common question for self-employed individuals is whether personal medical costs can be claimed as a business expense on Schedule C. While these costs are not business expenses, several other tax deductions are available. The framework for these deductions is spread across different parts of the tax return, each with its own set of rules.

The Self-Employed Health Insurance Deduction

The primary method for deducting health insurance costs is the self-employed health insurance deduction. This allows for a 100% deduction of premiums paid for medical, dental, and qualifying long-term care insurance. This benefit applies to coverage for the taxpayer, their spouse, dependents, and children under the age of 27. This deduction can be claimed whether you itemize or take the standard deduction.

To claim this deduction, a primary rule is that the health insurance plan must be established under the business. For a sole proprietor, this means the policy can be in the name of the business or the individual. For partners or S-corporation shareholders, the policy can be in the name of the business or the individual, but the business must either pay the premiums or provide reimbursement to the owner.

A limitation is tied to the business’s financial performance. The deduction for health insurance premiums cannot exceed the net profit of the business. If the business reports a net loss for the year, no deduction can be taken. For example, if a freelancer paid $8,000 in premiums but their Schedule C net profit was only $6,000, their deduction is limited to $6,000.

Another rule involves eligibility for other employer-sponsored health plans. The deduction is only available for months when the self-employed individual or their spouse was not eligible to participate in a subsidized health plan from another employer. This eligibility is determined on a month-by-month basis. For instance, if you were eligible for a former employer’s plan through June, you could only deduct premiums paid for coverage from July through December.

Deducting Other Medical Costs on Schedule A

While insurance premiums have a dedicated deduction, other out-of-pocket medical costs are handled separately as a personal itemized deduction. These are expenses not covered by your insurance plan, such as co-pays, prescription medications, dental treatments, and vision care. These costs are not business expenses and cannot be reported on Schedule C.

The ability to deduct these expenses is subject to the 7.5% Adjusted Gross Income (AGI) threshold. A taxpayer can only deduct the portion of their total qualified medical expenses that exceeds 7.5% of their AGI. For example, if a taxpayer has an AGI of $80,000, the first $6,000 of medical expenses is not deductible. If their total expenses were $9,000, they could deduct $3,000.

Qualifying expenses are broadly defined by the IRS and include payments for the diagnosis, cure, treatment, or prevention of disease. This includes fees paid to doctors, dentists, surgeons, and psychologists, as well as costs for inpatient hospital care, prescription drugs, and medical aids.

Deducting these expenses requires a taxpayer to itemize their deductions rather than taking the standard deduction. If your total itemized deductions are not greater than the standard deduction for your filing status, there is no tax benefit to itemizing.

Using a Health Savings Account (HSA)

A Health Savings Account (HSA) offers another tax-advantaged way to manage healthcare costs. An HSA is a savings account used to pay for qualified medical expenses with pre-tax dollars. To contribute to an HSA, an individual must be enrolled in a High-Deductible Health Plan (HDHP).

The appeal of an HSA lies in its triple-tax advantage. First, contributions are tax-deductible. Second, the funds can be invested and grow tax-free. Third, withdrawals are also tax-free, provided they are used for qualified medical expenses.

The IRS sets annual limits on HSA contributions. For 2025, the contribution limit is $4,300 for self-only HDHP coverage and $8,550 for family coverage. Individuals aged 55 or older can make an additional “catch-up” contribution of $1,000 per year. These accounts provide a way to save for out-of-pocket costs that may not be deductible otherwise.

How to Report Health-Related Deductions

Proper reporting is necessary, and none of the owner’s health-related deductions are reported on Schedule C. The only health expense on Schedule C is the cost of premiums paid for the business’s employees.

The self-employed health insurance deduction and HSA contributions are “above-the-line” deductions reported on Schedule 1 (Form 1040). These reduce your adjusted gross income (AGI). The health insurance deduction is calculated on Form 7206, while HSA contributions and distributions are reported on Form 8889.

Finally, out-of-pocket medical expenses that exceed the 7.5% AGI threshold are reported on Schedule A (Form 1040), Itemized Deductions. This is the only place to claim costs like co-pays and prescriptions.