Is My Health Insurance Tax Deductible?

Health insurance is one of the most important coverage types in your insurance portfolio.  Regardless of whether you are covered through your employer, an ACA Marketplace plan, or through private health insurance, your premiums can be costly.  You cost-sharing can be costly. 

It would be really nice to be able to deduct your premiums and other health care cost from your taxable income, which can lower the amount of money you owe each spring.

Which health insurance cost are deductible depends on how much you spent on medical care for the year and whether you are self employed.

If you are self employed and pay all your health insurance premiums, you can pull those cost from your taxable income. This is even do-able as an ‘above the line’ deduction, so you will not need to itemize on Schedule A.

If you are a W-2 employee, you can only deduct the out-of-pocket portion of your employer-sponsored health insurance premium if you take the itemized deduction on your tax return.  Even then, you can only deduct the cost that are over 7.5% of your AGI.

Here is what you can deduct for specific types of health insurance

Employer-sponsored health insurance

Most employer group plans are paid for, in part, by the employer.  The remaining portion of the premiums are taken directly out of your pay check, tax free.  You unfortunately can not double dip here, so you wouldn’t be able to write those premiums off a second time.

In the event that in a given year you need to spend an amount of money in excess of 7.5% of your adjusted gross income on medical cost (this includes premiums), you can deduct the amount OVER the 7.5% mark from your taxes on a Schedule A of Form 1040.  This will be complicated as you will need to itemize, while also determining the amount spent on pre-tax premiums and taxed cost share, so grab an accountant and bring the receipts.

ACA Marketplace Plans

Whether you purchase these plans from a federal or state exchange, the money you spend on this coverage is tax deductible.

If you are self employed and purchase one of these plans, it isn’t a deduction, it is an adjustment to your taxable income.

The full cost of premiums can be deducted from taxable income using Form 1040.

There are exceptions!  If you could have gotten health insurance from a spouse’s employer-sponsored plan and chose not to, your ACA premiums may not be deducted from your taxable income.  Also, if you qualify for ACA PTC or APTC, this will change how much you can deduct from your taxes.

COBRA insurance plans

Because you pay for everything, everything is eligible to be tax deductible, but only if you itemize your deductions and your total medical expenses exceed 7.5% of your AGI.

Short-term health insurance

Short term health insurance premiums can usually be deducted as a medical expense.  You will need to take the itemized deduction and your total annual medical expenses will need to be greater than 7.5% of AGI for you to claim the deduction.

What else is deductible?

Other than health insurance premiums, you can usually deduct the following medical expenses:

  • Long Term Care Insurance Premiums
  • Dental Insurance Premiums
  • Vision Insurance Premiums
  • Preventative Medical Care
  • Treatments for Certain Diseases
  • Any Equipment Need for a Medical Disability
  • Mental Health Service
  • Travel & Lodging Expenses for Medical Appointment

Remember, you can only deduct the cost of a qualifying medical expense if the total amount you paid is over 7.5% of your AGI and you choose to itemize your deductions.  You cannot deduct any amount paid for by an employer.

What isn't deductible?

Expenses need to be medically necessary to be claimed as a deduction.  Things that are usually will not pass this test are over the counter drugs, cosmetic surgery, and nicotine gum (unless it was prescribed).

What about 'other' types of insurance?

Supplemental health insurance, like accidental or critical illness insurance, are deductible only as a qualified medical expense.  Remember, medical expenses need to be over 7.5% of your AGI for them to be deducted, and you’ll need to itemize.

Final thoughts

I do not offer tax advice, this is not my area of expertise.  I do know how insurance premiums and medical cost can interact with taxes, but experts will know your the rules and regulations better.  For help deciding whether an itemized deduction or the standard deduction is right for you, contact a professional.

Aaron

2 thoughts on “Is My Health Insurance Tax Deductible?”

  1. Pingback: Do I have to take my employer's health insurance? - Cook Insurance Brokerage

  2. Pingback: How to save on health insurance - Cook Insurance Brokerage

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