Are health insurance premiums tax deductible?

SmartAsset: Tax deductible for health insurance

Health insurance premiums may be tax deductible under certain circumstances. Taxpayers who itemize may be able to use this deduction to the extent that their total medical and dental expenses, including health insurance premiums, exceed 7.5% of adjusted gross income. Self-employed individuals may also be able to deduct dental, health, and long-term care insurance premiums for themselves, spouses, and dependents. Premiums may also qualify for special tax treatment for those who receive coverage through the Health Insurance Marketplace or COBRA continuation insurance.

Consider asking a financial advisor for details on whether your health insurance premiums can be deducted at tax time.

Determining health insurance deductions

Health insurance premiums, as well as medical and dental care expenses, such as doctor visits and prescriptions, may be deductible if you itemize the deductions on your tax returns. You may also be able to deduct premiums for a qualified long-term care insurance policy.

However, you can only deduct the amount of these expenses that exceeds 7.5% of your adjusted gross income (AGI). That is, if your adjusted gross income is $100.00 and your total combined medical expenses, including health insurance, are $10,000, you will only be able to deduct $2,500. This is the amount your $10,000 in medical expenses exceeds 7.5% of your AGI, or $7,500.

Another limitation could affect employees whose employers offer cafeteria plans or other benefit programs that pay all or part of the health insurance premiums for employees using pre-tax funds. Employees who receive pretax premiums paid in this manner cannot deduct them unless the amount of the premiums paid by the employer is included in wages, tips, and other compensation and is reported in box 1 of the employee’s Form W-2 .

Self-Employed Health Insurance Deductions

SmartAsset: Tax deductible for health insurance

SmartAsset: Tax deductible for health insurance

Self-employed individuals can often deduct premiums paid for health, dental and long-term care insurance for themselves, their spouses and their children under 27. It’s an above-the-line deduction, meaning taxpayers can use it to reduce their AGI even if they don’t itemize. This opens up the deduction to more people, since most taxpayers use the standard deduction instead of itemizing.

To claim this self-employed deduction, taxpayers must not have been able to obtain health insurance from a spouse’s employer-sponsored plan or other source. In addition, the amount claimed as a deductible expense must be reduced by the sum of any reimbursements received by the taxpayer or paid to medical providers.

Other health insurance Tax benefits

Although health insurance premiums are only deductible in some cases, there are other ways to get a tax break on your insurance costs. For example, if you get health insurance through the Health Insurance Marketplace, you may be able to get a tax credit for the premiums you pay if you meet the income requirements. Taxpayers who qualify for the Premium Tax Credit can even get a refund as an advance against taxes before they file their returns.

To qualify for the premium, you must obtain coverage through the Health Insurance Marketplace, file a joint return if married, and not be claimed as a dependent on someone else’s tax return. The income limit is usually 400% above the federal poverty line, but that upper threshold was removed for 2021 and 2022 as part of the US bailout.

Another tax deal is available to someone who has a Health Savings Account (HSA) and is currently paying COBRA premiums. This break allows premium payers with untaxed HSA money. Also, if you’re receiving unemployment benefits, you can use HSA money to pay for your own health insurance policy if you choose not to use COBRA coverage.

The bottom row

SmartAsset: Tax deductible for health insurance

SmartAsset: Tax deductible for health insurance

Health insurance premiums can be a deductible expense on the tax returns of self-employed individuals as well as other taxpayers who itemize deductions. Itemized deductions are limited to the amount, including other out-of-pocket medical expenses, exceeding 7.5% of the taxpayer’s adjusted gross income. The self-employed don’t have to itemize to claim their deduction, but they can only take the deduction if they weren’t able to get coverage from another source, such as a spouse’s employer-sponsored plan.

Tax planning tips

  • Financial advisors regularly help clients with health insurance and tax decisions. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your advisor matches for free to decide who’s the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • The jargon used to describe health insurance plans, coverage, costs and tax treatment can be difficult to understand, but some understanding of specialized terms is essential to making good decisions. Learning the meaning of some of the basic insurance terms can help you get a clearer picture of your costs and coverage.

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