Are Health Care Premiums Tax Deductible?

Health care premiums may be tax-deductible depending on your circumstances; in general though, they usually are. Most Americans pay payroll-deducted insurance premiums without having any tax implications; this means the amounts they owe do not accrue as income tax liability. However, this doesn’t apply for people buying their own coverage outside of an exchange, or those receiving partial or full subsidies from either federal (or state) governments in advance payments; such subsidies must still be taxed as income and paid using after-tax dollars may still qualify as tax write offs against tax liability.

Self-employed or individual purchasers who purchase health insurance on their own can claim premiums as tax deductions if their total medical expenses exceed 7.5% of adjusted gross income – however this threshold was changed under ObamaCare from 10% to 7.5% starting 2022; thanks to The Further Consolidated Appropriations Act passed in 2021 as part of a COVID-19 relief package it made this change permanent.

To qualify for the health care expense deduction, you must meet certain additional criteria. Your total itemized deductions must surpass the standard deduction set annually by the IRS; furthermore, no more than your net self-employment income for that year should be claimed as deductions.

Self-employed taxpayers must submit Schedule C with their tax return in order to claim healthcare expense deductions, as well as health insurance premiums paid on behalf of themselves, their spouses and any dependent children for business-related use. As with healthcare expenses deductions, however, premium payments must exceed net profits over a given year in order to be deducted as tax expenses.

Premiums paid by employees of an S-corp are tax deductible if you claim them as miscellaneous itemized deductions on Schedule C or as taxable fringe benefits under a Qualified Small Employer Health Reimbursement Arrangement, in addition to the deduction you claim on Form 1040 for health care expenses.

Those working for S-corporations companies receiving health insurance subsidies through an exchange cannot deduct their premiums on either Form 1040 or Schedule A of their tax return. Your premiums are already deducted from your taxable income since they’re paid with pre-tax dollars – something which also applies for people enrolled in group health plans through their employers. However, those who purchase health insurance outside an exchange and have their premiums partially or completely subsidised by the federal government can deduct after-tax premiums on their tax returns. While this rule can become complex and be hard to follow at times, it’s essential that it be understood and the best way to determine an accurate deduction would be speaking with a trusted tax advisor.

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