Surprise! Your health insurance premiums could be tax-deductible. It depends if you pay premiums through an employer-sponsored plan. You could be eligible if your premiums exceed a certain percentage of your income.
Learn more about this tax break by reading on!
Health insurance premiums can be tax-deductible if not already paid pre-tax through an employer-sponsored plan. It must exceed a certain percentage of the taxpayer’s income. To take advantage of any deductions available, taxpayers should consult a qualified tax professional.
This article provides an overview of how this deduction works:
What is Health Insurance?
Health insurance is a type of coverage that pays for medical costs. It helps cover major medical expenses resulting from illness or injury and protects against financial hardship. It also covers routine preventative care like yearly physicals and immunizations.
The amount of coverage depends on income, existing health conditions, and other factors. Employers may offer group health plans as part of a workplace compensation package. The Affordable Care Act requires employers to provide coverage for employees who work at least 30 hours per week for at least 120 days a year. Individuals can purchase private plans on the open market or through government exchanges.
Tax deductibility of premiums depends on whether payments are pre-tax through an employer-sponsored plan or after-tax through an individual purchase plan. If they exceed a certain percentage of the taxpayer’s income, then they may be tax-deductible. There are many options for insurance. It is important to understand them and make informed decisions that meet specific needs.
What Does Tax Deductible Mean?
Tax deductible is a term used to describe expenses that may be claimed on your tax returns, reducing taxable income and taxes owed. Generally, it can include certain medical costs during the year, such as health insurance premiums paid directly by you if not part of an employer-sponsored plan. Depending on your income and plan, premiums may be deductible up to a certain percentage.
When considering if health insurance premiums are tax-deductible, it is important to first check if they qualify under IRS rules. Factors to consider:
- The health care coverage must meet the minimum requirements of the IRS;
- The individual for whom premiums are paid must meet other specific requirements in IRS rules;
- Premiums must exceed 10% of Adjusted Gross Income (AGI); and
- Premiums cannot be pre-tax through an employer-sponsored plan.
Not all eligible taxpayers will benefit from a deduction due to lower incomes and/or higher out-of-pocket costs. Additionally, some premiums, such as those for Medicare Part B or Medicare Part D, may not qualify as tax-deductible expenses. Therefore, it is best to consult a qualified tax expert before making any final decisions.
Are Health Insurance Premiums Tax Deductible?
Health insurance premiums may be tax-deductible, but it depends on the plan and the taxpayer’s situation. Generally, if there is no employer-sponsored coverage and the premiums exceed a certain % of the adjusted gross income, they can be deducted. It varies based on filing status and age.
Self-employed individuals may be able to deduct 100%, provided their medical expenses exceed 7.5% of their AGI. Other taxpayers might only qualify for the partial deduction, based on filing status and other medical costs in that tax year.
- Accidents, disabilities, long-term care, and certain life/health policies are never eligible for tax deductions.
Before claiming any deductions, it is best to consult with a qualified accountant or financial adviser. Each individual case is unique and may involve complicated factors.
How to Determine if Health Insurance Premiums are Tax Deductible
Taxpayers might be able to deduct some health insurance premiums from their taxable income. To qualify, these two must be true:
- The premiums are not paid pre-tax through an employer-sponsored plan.
- The premiums are more than a certain percentage of the taxpayer’s total income.
To find out if premiums are deductible, calculate your adjusted gross income (AGI). This is done by taking your modified adjusted gross income (all taxable income) and subtracting deductions like IRA contributions, moving costs, and alimony payments. Work out what percentage your AGI is of your total income.
If it’s over 8% and there’s no pre-taxed option, uninsured health insurance premiums may be tax deductible. This includes out-of-pocket medical costs of over 7.5% of AGI, and long-term care expenses of over 7% of AGI for people over 65 who don’t have Medicaid or similar government programs. It’s best to get advice from a qualified tax professional before deducting medical expenses. There are many things to consider!
What is an Employer-Sponsored Plan?
An employer-sponsored plan is health insurance from the employer. It’s for the employee, their spouse, and dependents. Pre-tax money pays the premiums. This means less tax to pay. But, if an employee opts out or there’s no plan, they can deduct part of the cost of individual or family health insurance premiums. This is only when certain conditions are met.
What is the Certain Percentage of the Taxpayer’s Income?
The IRS Tax Code Section 213(a) states that health insurance premiums may be tax-deductible if they are paid with after-tax money. This must exceed 7.5 percent of the taxpayer’s income, or 10 percent if they are over 65, or self-employed and not covered by an employer health plan. This extra deduction is in addition to any standard deductions.
Co-payments, deductibles, and other medical expenses for the taxpayer and their family are also included in the allowable deduction amount. To be eligible for this deduction on their federal income tax return, taxpayers need to list their medical expenses on IRS Form 1040, Schedule A.
Health insurance premiums can be tax-deductible. Check if your premiums were paid pre-tax through an employer-sponsored plan. Also, see if they exceed a certain % of your income. Usually, if both requirements are met, this qualifies for the deduction.
Plus, there may be other deductions like medical expenses and long-term care insurance. Get professional advice to confirm eligibility for deductions or credits.