Are health insurance premiums tax deductible? It’s a question that tends to come up each year as people start thinking ahead about their taxes. It is also a question that’s hard to answer because there are many things involved in taking tax deductions. At one time, every person had to have health insurance or pay a tax penalty based on the rules set forth by the Affordable Care Act but there have been some changes. An insurance deduction would come in handy for most people, but how and when can you make use of that tax benefit?
Are Health Insurance Premiums Tax Deductible? Find Out Now
In this article:
- Why Is Health Insurance a Good Idea?
- Start by Looking at the Medical Expense
- Can I Deduct My Health Insurance Premiums Any Other Way?
- The Difference Between Pre-tax and After-tax
- What About Medicare?
Why Is Health Insurance a Good Idea?
Healthcare.gov says that if you can afford insurance but choose not to get it, you may have to pay a penalty. That tax penalty is set mandated by Obamacare. Not everyone has to pay that, though, and, it was officially repealed in the Tax Cuts and Jobs Act of 2017.
Of course, you should still want to buy individual health insurance or get it from your employer paid health insurance plan. It just means after the 2017 tax year, there will no longer be a penalty for not having it. Even with the penalty in place, there were many exceptions, so it might not have applied to you anyway.
Health insurance helps you pay your medical bills, though, so it is something you want for yourself and your family. If you have a job, your employer might offer a plan that would cost you less or even nothing at all. If you are self-employed or want a different plan than your employer offers, you can shop for individual health insurance.
This is where it gets kind of complicated if you are wondering can I deduct my health insurance premiums? You might be able to, depending on if you have an employer-sponsored plan or you buy the insurance yourself. It also depends on how to do your taxes.
Start by Looking at the Medical Expense
This is a good place to start because health insurance is included in the medical expense deduction. You can only take it, though, if you itemize your deductions. In other words, if you take the standard deduction each year, you can’t take off for medical expenses.
If you do itemize, your overall health care costs including premiums must be more than 10 percent of your adjusted gross income. Adjusted gross income means how much you made after you take off any allowable deductions like moving expenses.
Once you know your adjusted gross income, multiply it by 0.10. If that sum is less than your health costs for the year including your insurance premiums, you can take the medical expense deduction as long as you itemize. That would be your tax deduction for health insurance. Make sure you record all your medical costs for tax deduction recording.
Can I Deduct My Health Insurance Premiums Any Other Way?
It’s possible you can deduct your health insurance premiums even if you don’t itemize. First, you have to answer a very important question: Who pays for your health insurance? If the answer is your employer, then you cannot take a health insurance deduction. You can’t deduct something you didn’t pay for, it’s that simple.
If you answered you do then that changes things. The next question is why did you pay for your own health insurance? Did you pay it first and then your employer paid you back for it in some way? If so, then you wouldn’t be able to deduct that either.
Did you pay it because you own your own company or work as a contractor? If that is your answer, then, yes, you might be able to deduct your health insurance premiums along with your dental, vision, and long-term care insurance. This is true only as long as you made money that year. If you lost money, you can’t claim it.
The Difference Between Pre-tax and After-tax
With some employer plans, you have the option to pay your insurance premiums pre-tax or before your employer takes taxes out of your paycheck. After-tax means your employer figured out your tax deductions and then took out the insurance premium afterward.
Did you pay with pre-tax dollars? If so, then you can’t take the deduction because your employer took it for you before figuring your payroll tax. You can’t deduct it twice.
If you paid for it after-tax, you may be able to deduct it but only if the premiums show up on your W-2 form and tax statement.
What About Medicare?
Some people get their health insurance through Medicare, so the rules are different. There are different types of Medicare like A, B, and D. If you have Medicare A, you might be able to take the deduction if your premiums are a medical expense and you are not covered by Social Security. You may also take the medical expense deduction if you are a government employee who paid Medicare tax.
If you are on Medicare B or D, health insurance premiums are a medical expense. If you can take a medical expense deduction, you can claim them.
Are health insurance premiums tax deductible? Find out how much getting health care costs first with this video from Consumer Reports:
Tax deductions are complicated, so it’s important to understand them. Knowing whether you can take tax deductions for health insurance premiums could save you a lot of money come tax time.
Are health insurance premiums tax deductible? Yes, depending on your declaration. Ask us if you have more questions regarding medical insurance and other expenses for tax deduction.