Health insurance costs are one of the largest expenses many people must deal with each month, but premiums may be tax deductible depending on how and if you purchase coverage.
Most Americans under 65 secure health insurance through an employer as part of a group plan provided by their company. Employers typically cover most of the cost, while employees must contribute the remainder. As a result, it is common practice among employers to allow employees to deduct health care premiums from their income taxes each year.
Self-employed taxpayers face more complex rules. “Self-employed taxpayers can write off health insurance payments made for themselves and their family if these expenses, along with dental and qualified long-term care insurance costs exceed 7.5% of adjusted gross income,” states Claire Hunsaker of AskFlossie – an online financial community for women.
Employed taxpayers may also deduct their health insurance if they itemize deductions. The IRS provides detailed instructions in Publication 535 regarding this deduction; it should be noted, however, that it applies only if one pays their own insurance and doesn’t rely on premium subsidies from an exchange in their state for premium subsidies. Furthermore, this deduction only applies when purchasing coverage outside the workplace; those enrolling in group plans provided by either their employer or spouse’s employer and then opting out aren’t eligible.
For both situations, your deductible amount should be entered on Line 162 of IRS Form 1040. According to IRS regulations, it will be defined as either actual payment made or the standard deduction limit, currently set at $12,000 per couple and $7,600 for singles.
There may also be other scenarios in which this deduction can be claimed, such as if you are a partner or LLC member who pays premiums for themselves and family members. In such a situation, enter this value on page one of IRS Form 1040; it will reduce taxable income but should not replace itemizing deductions on Schedule A. However, it can still be claimed in conjunction with qualified health savings accounts; always consult a tax professional regarding this particular scenario before taking action.