Health Insurance for the Self-Employed & Small Businesses in Tennessee

Working for yourself is rewarding. Figuring out health insurance on top of it is usually the part nobody warns you about.

When you leave a job, start a business, or hire your first employee, the same questions tend to come up: Do I buy coverage through the Marketplace or somewhere else? Can my business deduct what I pay? Are there tax credits I'm missing? What about HRAs?

This article is a plain-English overview of how health insurance generally works for Tennessee freelancers, independent contractors, sole proprietors, and small-business owners. It is educational, not tax or legal advice, and rules change. Always confirm current details with a qualified tax professional and a licensed advisor before deciding.

Self-Employed With No Employees? Here's Where to Start

If you run a business and have no employees (a freelancer, consultant, independent contractor, or solo owner), you generally buy coverage the same way an individual does, not through an employer-style group plan.

Two main paths to compare:

• The individual Health Insurance Marketplace (HealthCare.gov): ACA-compliant plans you buy on your own. You may qualify for premium tax credits that lower your monthly premium if your household income and other eligibility factors allow.
• ACA-compliant private plans sold outside the Marketplace: Many off-Marketplace plans still meet ACA requirements. The difference is where you buy, not whether the plan is "real" insurance. Some people choose an off-Marketplace plan for provider networks or plan features, while others use the Marketplace because that is where premium tax credits are applied.

A common point of confusion: businesses with no eligible employees generally cannot buy SHOP small-group coverage for the owner. HealthCare.gov is clear that self-employed people without employees use the individual Marketplace, not SHOP. Comparing plans and confirming eligibility before enrolling matters, because premiums, networks, and subsidies vary.

HealthCare.gov — Health coverage for the self-employed

Health Insurance Options for Small Businesses With Employees

Once you have employees, the conversation changes. Options generally include:

• Small-group (employer-sponsored) health insurance: Plans you offer to eligible employees, often with the employer paying a share of the premium.
• The SHOP Marketplace: Available to employers with 1 to 50 full-time-equivalent employees where plans are offered in your area. SHOP availability is limited and varies by location, so check HealthCare.gov for current Tennessee options before assuming a plan is available to you.
• Working with a licensed broker or carrier directly: You can also offer group coverage outside SHOP through an insurance carrier or broker.

Employer contributions, enrollment rules, and compliance details depend on your business size and the plan. A broker or licensed advisor can help you compare. If you are exploring options for a Tennessee business, our health insurance for business owners page covers this in more detail.

HealthCare.gov — SHOP coverage for employers

Are Health Insurance Premiums Tax-Deductible?

Sometimes, and how you deduct depends on your business structure.

The self-employed health insurance deduction

If you are self-employed (including a sole proprietor, partner, or more-than-2% S corporation shareholder) and you pay for health insurance for yourself, your spouse, and your dependents (and a child under age 27), you may be able to deduct the premiums above the line on your tax return. "Above the line" means it reduces your adjusted gross income whether or not you itemize deductions.

Important limits:

• The deduction is generally limited to your net earnings from self-employment.
• You cannot claim it for any month you (or your spouse) were eligible to participate in an employer-subsidized health plan (including a spouse's employer plan).

Where it goes on the return

• The deduction is reported as an adjustment to income on Schedule 1 (Form 1040).
• Beginning with tax year 2023, you figure the allowable amount using Form 7206. Form 7206 replaced the old Self-Employed Health Insurance Deduction Worksheet that used to appear in IRS Publication 535 (Pub. 535 was last revised for 2022). Form 7206 calculates the amount, and the result then flows to Schedule 1.
• You use Form 7206 to compute the deduction when you are claiming it; not every filer's situation requires completing the full form, and you would not file it at all in a year you are not claiming the deduction. Confirm with your tax preparer whether it applies to your return.

Special rules for partners and more-than-2% S corporation shareholders

Your business structure affects how premiums are treated:

• Partners generally may deduct premiums for themselves and their families under the self-employed health insurance deduction, subject to the earnings and eligibility limits above.
• More-than-2% S corporation shareholders have a special rule: for the plan to be treated as established under the business, the S corporation generally must pay or reimburse the premiums and report them on the shareholder's Form W-2 as wages. The shareholder then deducts them on Schedule 1. A policy in the shareholder's name only, without reimbursement and W-2 reporting, may not qualify.

This is one area where a CPA's input matters, because getting the mechanics wrong can cost the deduction.

IRS — 2025 Instructions for Form 7206

Can Small Businesses Qualify for Health Insurance Tax Credits?

There is a specific credit, the Small Business Health Care Tax Credit, but it has narrow rules and not every small business qualifies.

Who may qualify

An employer may qualify for the credit if all of these apply:

• It has fewer than 25 full-time-equivalent employees.
• Average annual wages are below the IRS inflation-adjusted threshold (the original law set the figure at $50,000, adjusted for inflation since 2014).
• It pays at least 50% of the premium cost for employee-only coverage, with the same percentage offered to all employees.
• It buys coverage through SHOP (with limited exceptions where the IRS has allowed alternatives).

How the credit works

• The maximum credit is up to 50% of employer-paid premiums, but the credit is highest for the smallest employers (fewer than 10 employees with the lowest average wages) and phases down as those numbers rise. Not every qualifying business gets the full 50%.
• The credit is generally available for only two consecutive taxable years.
• A solo self-employed owner with no employees typically does not qualify, because there are no employees to cover and owners are generally excluded from the credit's calculation.

Do not assume a 50% credit applies to your business. The eligibility and amount depend on the factors above.

IRS — Small Business Health Care Tax Credit

What Are QSEHRA and ICHRA?

A Health Reimbursement Arrangement (HRA) lets an employer reimburse employees for medical care, including individual insurance premiums, on a tax-advantaged basis. Two options small businesses often hear about:

QSEHRA (Qualified Small Employer HRA)

• For small employers, generally with fewer than 50 full-time employees, that do not offer a group health plan.
• The employer sets a reimbursement amount (within annual limits set by the IRS).
• Self-employed sole proprietors and partners generally cannot participate in a QSEHRA. It is designed for employees.

ICHRA (Individual Coverage HRA)

• Available to employers of any size.
• Reimburses employees for individual-market premiums and other medical care, subject to the plan's design.
• As with QSEHRA, self-employed owners generally are not treated as employees and typically cannot participate, with limited exceptions (for example, certain C corporation owners).

How HRAs interact with the premium tax credit

This is where people get tripped up, and the rules differ between the two:

• QSEHRA and premium tax credits: If the QSEHRA is considered affordable for the employee, the employee is not allowed a premium tax credit for Marketplace coverage for those months. If the QSEHRA is unaffordable, the employee may be allowed a premium tax credit, but the credit is reduced by the monthly permitted benefit the QSEHRA provides. Simply being offered a QSEHRA does not automatically keep or restore Marketplace subsidy eligibility.
• ICHRA and premium tax credits: If the ICHRA is affordable, the employee is not allowed a premium tax credit. If the ICHRA is unaffordable, the employee may be allowed a premium tax credit only if they opt out of the ICHRA and enroll in Marketplace coverage, and otherwise qualify. Opting out is required, not automatic.

In short, opting out of an HRA does not by itself guarantee you keep a premium tax credit, and affordability is determined by specific formulas. Get personalized guidance here.

HealthCare.gov — QSEHRA HealthCare.gov — Individual coverage HRAs IRS — Premium Tax Credit Q&A (ICHRA, Q22; QSEHRA, Q23)

Which Health Insurance Option Makes Sense for Your Business?

These illustrative examples are not individualized eligibility determinations, just a sense of how the options line up.

• A self-employed photographer with no employees: Buys an individual Marketplace plan or an ACA-compliant private plan. Cannot use SHOP. May qualify for the premium tax credit on Marketplace coverage depending on income. May claim the self-employed health insurance deduction on Schedule 1 (figured on Form 7206), subject to the earnings and employer-plan-eligibility limits.
• A husband-and-wife business with no other employees: Generally each spouse obtains individual or family coverage. Whether a spouse is treated as an employee for HRA purposes depends on the business structure, so this needs a closer look with a tax advisor.
• A local business owner with five employees: May consider a small-group plan or SHOP (where available in Tennessee), or a QSEHRA to reimburse employees for individual coverage. The Small Business Health Care Tax Credit may apply if the wage, contribution, and SHOP conditions are met, but the credit phases down and runs for only two consecutive years.
• A growing company considering employee benefits for the first time: Comparing group coverage, SHOP, and an ICHRA (or QSEHRA if small enough) is usually the starting point, along with understanding how each affects employees' own premium tax credits.

For broader coverage comparisons, our private health insurance and self-employed health insurance pages walk through more of the individual side, and our family health insurance page covers household situations.

A Note on 2026 Premium Tax Credit Changes

If you have been on a Marketplace plan since before 2026, one change is worth knowing. The enhanced premium tax credits created in 2021 and extended through 2025 by the Inflation Reduction Act expired after 2025. For 2026, the premium tax credit returns to the standard ACA rules:

• Eligibility is again generally limited to households with income between 100% and 400% of the federal poverty level (the "subsidy cliff" above 400% FPL returns).
• The share of income you pay toward a benchmark plan follows the standard sliding scale (roughly 2% at the low end up to about 9.5% at 400% FPL), rather than the temporary caps in place through 2025.

This means some people who received subsidies for 2025 may not qualify for 2026, and many who do qualify will pay a higher share of the premium than last year. When planning for 2027, assume the standard rules continue unless Congress changes the law.

KFF — 2026 ACA Marketplace enrollment, premiums, and deductibles Congressional Research Service — Enhanced Premium Tax Credit and 2026 Exchange Premiums

Deductions, Credits, and Reimbursements Are Not the Same Thing

Before you plan around any of the above, it helps to keep three terms straight:

• A deduction (like the self-employed health insurance deduction) lowers your taxable income. The tax savings depend on your tax bracket.
• A tax credit (like the Small Business Health Care Tax Credit) lowers your tax liability more directly, often dollar for dollar, but only if you meet its specific rules.
• A reimbursement (like a QSEHRA or ICHRA) is money your employer pays back to you for qualified expenses, on a tax-advantaged basis, within plan limits.

They are not interchangeable, and none of them is guaranteed. Your actual eligibility depends on your income, business structure, employees, and the plan year's rules.

How The Reynolds Advisors Can Help

Running your own business is enough work without trying to figure out health insurance on your own!

At The Reynolds Advisors, Sarah and Brandon Reynolds help Tennessee individuals, families, and small-business owners explore their health insurance options.

Whether you're self-employed, growing your team, or simply ready to compare coverage, we'd love to help you find options that make sense for your situation.

Get Your Free Health Insurance Quote

Insurance information in this article is educational. Tax rules change, and your situation is unique. Please consult a qualified tax professional about your own circumstances.