Are My Health Insurance Premiums Tax-Deductible?

When tax time rolls around, you may be wondering if your health insurance premiums are tax-deductible. It depends on who you are and who you work for.

Self-employed

If you are self-employed, the answer often is yes—the premiums you pay to cover yourself and your dependents are probably tax-deductible, as long as you're obtaining your own health insurance.

This is true regardless of whether you get your insurance through the exchange, or in the individual market outside the exchange.

Premium subsidies are available in the exchange, but not outside the exchange. Either way, self-employed individuals can only deduct the amount they actually pay in premiums. There's no "double-dipping" allowed, so if you receive a premium subsidy in the exchange to cover a portion of your premium, you can only deduct your after-subsidy premium on your tax return.

But even if you're self-employed, if you, your spouse, or your dependents are covered by another employer's group health insurance plan, the premiums you pay for that coverage are probably not something you can deduct on your tax return. That's because they're most likely already being paid with pre-tax dollars since employer-sponsored health insurance is tax-deductible for both employers and employees.

Health Savings Accounts

If you work for a company that offers health insurance as part of what's known as a cafeteria plan, you may have a health savings account (HSA).

You may also have an HSA if you buy your own health insurance and you've opted for an HSA-qualified high deductible health plan.

The contribution you make to your HSA is 100 percent tax deductible up to a limit of $6,750 for family coverage and $3,350 for individual coverage in 2016. For 2017, the individual contribution limit will increase to $3,400, but the family contribution limit will remain unchanged from 2016.

Premiums as part of overall medical expenses

If you are not self-employed, and you don't work for a company that provides health insurance with a cafeteria plan, the Internal Revenue Service (IRS) allows you to count medical and dental insurance premiums (and with some limitations, long-term care insurance premiums) as part of the 10 percent of your adjusted gross income (AGI) that has to be spent on health care before any out-of-pocket medical expenses can be deducted.

A long list of health-related expenses can be included be deducted, including prescription medications and optional surgical procedures, like laser eye surgery to correct vision. The IRS has a list on its website. Keep track of the out-of-pocket expenses you incur during the year - including health insurance premiums if you're buying your own plan but are not self-employed. If your total costs exceed 10 percent of your AGI, you'll be able to deduct the costs above that threshold.

So for example, if your AGI is $50,000 and you spend $8,000 on medical costs, including health insurance premiums that you pay yourself, you'd be able to deduct $3,000 worth of medical expenses on your tax return (10 percent of $50,000 is $5,000, so you'd be able to deduct the amount in excess of $5,000 in this scenario).

In order to deduct medical expenses, you have to itemize your deductions. This is in contrast to the two scenarios described above—the self-employed health insurance premium deduction and the Health Savings Account deduction—both of which can be utilized regardless of whether you itemize deductions.

This is just an overview of how the IRS treats health insurance premiums. If you have questions about your specific situation, but sure to speak with a tax advisor.

Updated by Louise Norris

Sources:

Internal Revenue Service, Publication 502 (2015).

Internal Revenue Service, Revenue Procedure 2015-30

Internal Revenue Service, Revenue Procedure 2016-28

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