Statista reveals as of 2021, over 200 million people in the US had health insurance. Health insurance is undeniably one of the most significant monthly expenses for Americans. The current sharp spike in the cost of living has led many consumers to wonder whether they can reduce their costs through tax breaks on their monthly health insurance premiums.
The good news is that your health insurance can be tax deductible under some circumstances. This blog discusses the specific scenarios when you can deduct health insurance premiums on your taxes.
When to deduct health insurance premiums from taxes
The following scenarios may allow you to claim a tax deduction for the health insurance costs:
Itemizing health insurance deductions
If you itemize the deduction on your tax returns, you may be eligible to deduct health insurance premiums and other medical and dental care expenses, including prescriptions and doctor visits, from your taxes. Deducting premiums for a qualified long-term care insurance policy is also possible. However, keep in mind there are several limitations to consider, including:
- You can only deduct expenses exceeding 7.5% of the adjusted gross income(AGI). For example, you can only deduct $2,500 if your adjusted gross income is $100,000 and your total combined medical expenses, inclusive of health insurance, come to $10,000. In this scenario, your total medical expense exceeds 7.5% of your AGI or $7500.
- The limitations also affect employees whose employers offer benefits, such as cafeteria plans, which pay for health insurance using pre-tax funds. Such employees can’t deduct their health insurance premium unless the premium paid by the employer is included in wages, tips, and other compensation, which is then filed in Box 1 of that employee’s Form W-2.
Self-employed health insurance deductions
If you are self-employed, you can deduct premiums that you paid for health, dental, and long-term care insurance. Ideally, you can deduct the premiums if you paid for yourself, a child under 27, or a spouse. This process is commonly referred to as above-the-line deduction and is designed to benefit taxpayers that use the standard deduction instead of itemizing. In a nutshell, this option allows taxpayers that don’t itemize to reduce their AGI. The following are some of the requirements to claim the self-employed deduction:
- You shouldn’t have an option of benefiting from healthcare insurance from a partner’s employer-sponsored plan
- The amount you claim as deductible expenses has to be reduced by reimbursement amounts that you paid to medical providers or received
Other types of health insurance tax breaks
The following are some of the other scenarios to obtain a tax break on your insurance costs:
Health Insurance Marketplace tax deductions
Taxpayers who obtained health insurance from Health Insurance Marketplace could qualify for a tax credit for paid premiums, provided they meet all the income requirements. The income limitation is typically 400% above the federal poverty line. It is also possible to get a refund as an advance against taxes if you qualify for the Premium Tax credit. The following are the criteria to qualify for the premium:
- You must get coverage through Health Insurance Marketplace
- If married, you have to file a joint return
- You shouldn’t be claimed as dependent on another person’s tax return
Health savings account (HSA) tax deal
A taxpayer with a Health savings account (HSA) and currently pays premiums for COBRA continuation health insurance can qualify for a tax break. The break enables you to pay premiums with the untaxed money you get from HAS. Alternatively, taxpayers getting unemployment benefits can use money from a HAS to pay for their one health insurance instead of using COBRA coverage.
Healthcare Solutions Team can help reduce your medical costs
If you pay for your own medical insurance, you can deduct the amount from the taxes provided you meet the income requirements. Other instances when you can deduct the premiums include when you itemize the deduction on your tax return and if you obtained their health insurance from Health Insurance Marketplace. Generally, health insurance premiums and tax laws are very complex, which is why it is advisable to seek advice from health insurance experts.
At Healthcare Solutions Team, we offer customized healthcare solutions designed to minimize costs and maximize coverage for our clients. Take advantage of our affordable plans and tailored solutions to protect your family’s future and reduce medical costs. Contact us today to schedule a consultation.