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 and medical expenses.
In some scenarios, what you pay each month for health insurance is tax deductible. In others, it’s not. It all boils down to how you get coverage.
As for your medical expenses, that’s where things get more nuanced. While a tax professional can offer more detailed information, we can offer insight on some basics.
How to know if your health insurance premium is tax deductible
In a nutshell, it depends on your answer to this question: Do you pay your health insurance premiums entirely on your own?
If so, you can claim them as a deduction. If not, you can’t.
Those are the simple answers; the details of how you deduct premiums depends on the details of your situation.
Who can deduct their health insurance premium?
There are three common scenarios under which you can claim your health insurance premium as a tax deduction.
1. You’re 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
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).2
2. You used after-tax money to pay for your premiums
You can’t claim premiums paid by your employer-sponsored health insurance plan.3 But what if you paid a portion yourself? Then, depending on how you paid it, you may be able to deduct that portion as a medical expense on Schedule A (Form 1040).4
If you paid with:
- Pre-tax dollars – You can’t claim a deduction.5 Why? Paying with pre-tax dollars means 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.
- After-tax dollars – You may be able to claim a deduction. The premiums must be included on your Form W-2, Wage and Tax Statement.6
Note: For Tax Year 2017, the IRS states that you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10 percent of your Adjusted Gross Income (AGI).7
3. You use Medicare
Medicare A, B and C may be included as deductible medical expenses as follows8:
- 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.
Premium tax deduction limits
You can’t include the amount of health insurance premiums paid by or through the premium tax credit (you can deduct as a medical expense any amount of advance payments of the premium tax credit that you had to pay back).9
Is it worth it to itemize your deductions?
This is a question for a tax professional. Keep in mind that for Tax Year 2017, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10 percent of your Adjusted Gross Income (AGI).10
How to deduct medical expenses on your taxes
If you are self-employed and deduct your premium, you or the person preparing your taxes will do so on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040).11 Deductible medical expenses are itemized on Schedule A (Form 1040).
What medical expenses are tax deductible?
You may be surprised to learn which medical expenses qualify as deductions. There are several, and they may change from year to year.
Eligible medical expenses for 2017 include those listed below, to name a few. See IRS Publication 502 for the details on each item and a complete list of deductible medical expenses (as well as a list of those you cannot claim as deductions).
- Breast pumps and supplies
- Contact lenses
- Eye exams
- Hearing aids
- Laboratory fees
- Long-term care
- Medical conferences
- Nursing home
- Nursing services
- Pregnancy test kit
- Psychiatric care
- Weight-loss program
As legislation is passed, Publication 502 is updated and revisions are noted on IRS.gov.
This article provides a basic overview of tax deductions for health insurance premiums and medical expenses. Please consult with a tax professional for advice on your specific circumstances.
Looking for some ways to save on your health care costs next year? Check out these 5 Easy Ways to Reduce Health Care Costs and implement them today so you can save money tomorrow.
Don’t have Alternative or Supplemental insurance in your financial planning toolkit? Learn which health plans can help you and your family save in 2018.