When tax season comes around, people may be curious whether your health insurance premiums are tax-deductible. Well, it depends on several factors, like how you secure your coverage and, if you are an employer, detail your deductions and payments for medical expenses, including payments for health insurance. However, we aim to give an account of how it works especially how the rule varies for self-employed individuals and the amount spent on medical expenses.
Health Insurance Premiums That Are Tax Deductible
The health insurance premiums you cover for policies related to medical care are eligible for tax deduction. These policies include various treatments like hospitalization, surgery, X-rays, prescription drugs, insulin, dental care, lost or damaged contact lenses, and long-term care, within specified limits.
Furthermore, when preparing your taxes, you have the right to deduct these expenses for yourself, your spouse, and your dependents. Deductible premiums include those for insurance acquired through COBRA, along with Medicare premiums for Part B and D.
When not enrolled through Social Security and not a former government employee who paid Medicare tax, premiums for Medicare A are also qualified for tax deduction. In addition, health insurance purchased through the federal or state marketplace allows for the deduction of out-of-pocket premiums.
For self-employed individuals, the amount paid for health insurance and qualified long-term care insurance premiums can be directly deducted from income. This deduction diminishes your adjusted gross income (AGI), resulting in a reduced tax bill.
Additionally, there might be a chance to deduct medical and dental expenses as itemized deductions on Schedule A of IRS Form 1040. Lastly, you can’t deduct the entirety of your medical expenses; only the portion surpassing 7.5% of your adjusted gross income, despite your employment status.
Health Insurance Premiums That Aren’t Tax Deductible
It’s important to note that not all health insurance premiums qualify for tax deductions. Additionally, the portion of premiums covered by your employer or deducted from your pretax paycheck is not eligible for deduction.
If you are enrolled in Medicare under Social Security, the Medicare Premiums paid by Social Security are not considered tax-deductible. Also, where a tax subsidy covers part of your health insurance premiums obtained through a state or federal insurance marketplace, the subsidized portion is not deductible.
Tax Deductibles by Health Insurance Source
Employer-Sponsored Plans
Premiums for company-sponsored health insurance are not eligible for tax deduction. This is because employers deduct these premium payments from your paycheck every month.
As your employee contributions already benefit from tax savings, it’s not permissible to deduct them once again on your tax return. Additionally, contributions to Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are made on a pretax basis and are not tax-deductible. Since these donations already secure tax advantages, they cannot be deducted from your tax return.
COBRA Insurance
COBRA insurance provides a temporary continuation of employer-sponsored insurance coverage after leaving the company. Typically, the premiums for COBRA insurance are tax-deductible, as you cover them on an after-tax basis. Therefore, when you pay these premiums out of your pocket, you can claim them as a tax deduction.
Marketplace Insurance
If you purchase medical coverage through an insurance marketplace, your premiums qualify as deductible medical expenses. However, if you are eligible for health insurance through your spouse’s employer and choose not to take that coverage, you cannot deduct your insurance premiums on your tax return.
Medicare
Premiums for Medicare Part B, C, or D, as well as Medigap coverage, are eligible for tax deduction. However, Medicare Part A premiums are generally not tax-deductible if paid through Social Security, which is the usual method.
Moreover, if you independently pay for Medicare Part A premiums, separate from Social Security, you can deduct that cost on your tax return.
What Medical Expenses are Tax-Deductible?
Many individuals may not realize that certain costs are eligible for deductions from their federal income taxes. In addition to health insurance premiums, other medical expenses that can be deducted include the following:
- Premiums for long-term care insurance
- Premiums for dental and vision insurance
- Expenses related to preventive medical care
- Costs for specific disease treatments
- Necessary equipment for medical disabilities
- Mental health services
- Travel and lodging expenses for medical appointments
However, you must be only allowed to deduct qualifying medical expenses if the total surpasses 7.5% of your adjusted gross income (AGI). Also, you can decide on itemizing your deductions.
What Medical Expenses Aren’t Tax Deductible
To be eligible for the deduction, the expenses must be only for medically necessary treatments or equipment. This implies that you cannot deduct costs such as:
- Over-the-counter drugs
- Cosmetic surgery
- Nicotine gum and patches that don’t require a prescription
- General health improvement programs
It’s important to note that you cannot deduct any medical expenses for which you have already received reimbursement. This includes premium tax credits, as these credits decrease the amount you contribute towards health insurance.
Conclusion
In certain situations, health insurance premiums can be considered deductible from federal taxes. Typically, this is because these monthly payments fall under the category of medical expenses.