When the taxman cometh, we want to send him on his way with only the necessary funds. But when you’re itemizing deductions, there can be lots to consider.
For example: health insurance premiums. Are they tax deductible or not?
In a nutshell, whether or not you can deduct health insurance premiums depends on your answer to this question: Do you pay them entirely on your own?
- Yes – you can typically claim them as a deduction
- No – you can’t typically claim them
Those are, of course, the most generalized answers. The details of how you deduct premiums depends on the details of your situation. Below, we note the basics; a tax professional can provide you with more detailed information.
Please note, the materials available at this web site are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem.
Who can deduct health insurance premiums?
There are three common scenarios under which you may be able to claim your health insurance premium as a tax deduction. We’ll take a high-level glance at each of them, but you’ll want to consult with a tax professional for guidance.
1. The self-employed
If you are self-employed, you may be able to write off health insurance premiums (as well as dental insurance and qualified long-term care insurance premiums) for yourself, your spouse and your dependents.1
This may also apply to insurance for children under the age of 27 at the end of the tax year, even if they were not your dependent.2
Keep in mind that you must have a net profit for the year reported on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040).3 Additional requirements may also apply.
2. Retirees on Medicare
According to the IRS, Medicare A, B and C may be included as deductible medical expenses as follows:4
- Medicare A – Premiums may be considered a medical expense if you aren’t covered under social security or weren’t a government employee who paid Medicare tax.
- Medicare B – Premiums are a medical expense; check the information you received from the Social Security Administration to find out your premium.
- Medicare D – Premiums are a medical expense.
It may be worth noting here that IRS Publication 502 states that retirees cannot deduct health insurance premiums if they elected to pay them with “tax-free distributions from a retirement plan made directly to the insurance provider and these distributions would otherwise have been included in income.”5
3. Your employer-sponsored premium is on your W-2
You can’t claim premiums paid by your employer-sponsored health insurance plan. But what if you paid a portion yourself? You may be able to claim a deduction if you paid the premium with after-tax dollars. The premium must be included on your Form W-2, Wage and Tax Statement.6
Who cannot deduct health insurance premiums?
If either of the following scenarios apply to you, then it is unlikely you can deduct your health insurance premium:
Your employer pays your premium
As stated above, you cannot deduct premiums paid by an employer-sponsored health insurance plan unless the premiums are included on your Form W-2, Wage and Tax Statement, according to IRS Publication 502.7
Why can’t you claim a deduction if your premium is paid by an employer-sponsored health insurance plan? These premiums are paid with pre-tax dollars, this money isn’t included in your gross income. You’ve already received a tax benefit by not paying taxes on those funds—you can’t double dip.
You received a premium tax credit
You can’t include the amount of health insurance premiums paid by or through the premium tax credit (however, you can deduct as a medical expense any amount of advance payments of the premium tax credit that you had to pay back).8
Looking for potential savings on your healthcare costs?
If you can’t deduct your premium and are looking for some additional savings on your monthly healthcare costs in the coming year, you may want to consider alternative or supplemental health insurance products that can help lessen what you pay out of pocket for covered healthcare expenses.
Short-term medical (STM) – Short-term policies are a type of coverage that’s available year-round to those who qualify. Short-term insurance provides temporary health benefits for as few as 30 days and typically includes benefits for high-dollar, unexpected healthcare as opposed to a major medical plan that must be ACA-compliant and include all 10 essential health benefits.
Short-term insurance is not guaranteed issue, and you may be denied coverage based on your health history. Due to their less comprehensive nature, however, short-term policies usually have lower monthly premiums than unsubsidized major medical insurance. The amount of premium you pay will vary depending on the benefits selected.
Hospital insurance – Also available year-round, hospital policies are supplemental insurance that provides benefits for medical care received while hospitalized due to injury—some plans also include coverage for certain critical illnesses and additional coverage for outpatient services. Some states will not allow you to buy hospital indemnity insurance unless you also have a major medical insurance policy.
Hospital insurance benefits are paid at set amounts for specific durations (e.g., per day, per week, per visit).
Summary + Next Steps
There are circumstances, such as self-employment, under which you may be able to deduct your health insurance premiums when filing a federal tax return. That said, tax laws and personal circumstances are subject to change, so a tax professional can help you make the final determination.
The materials available at this web site are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem.