Are Health Care Insurance Premiums Tax Deductible?

As an employer, chances are your employees contribute toward their own health care insurance premiums and the payments are tax deductible for you and your business. Just be mindful of any specific rules regarding individual market coverage when deducting them as deductions may differ greatly than expected.

If your employees receive group health coverage through a cafeteria plan, premium conversion plan, or another employer-sponsored program, they can deduct only their portion of monthly premium payments that they personally pay each month. Payroll deduction is typically done pre-tax to avoid including this money as income in their W2 forms; it can help lower annual taxes as they’re paying both personal and group medical costs simultaneously.

Individuals who are self-employed typically can deduct health care insurance premiums only if they itemize deductions and their total unreimbursed medical expenses for the year exceeded 7.5% of their adjusted gross income (AGI). This threshold applies both for Medicare as well as non-Medicare costs such as long-term care insurance premiums.

Supplemental health insurance premiums such as hospital indemnity insurance and critical illness coverage can be written off as qualified medical expenses on your taxes. COBRA premiums may also qualify as qualifying expenses if they exceed 7.5% of AGI for the year.

As of early 2023, the IRS website indicated that additional guidance on the treatment of health insurance premiums for employees of 2-percent shareholder-employee joint ventures had yet to be provided; it may still be possible that spouses can be reimbursed by their partnerships for individual premiums paid with pretax dollars.

As a general rule, your health insurance premiums that you and your spouse pay must be offset with any amounts paid with post-tax dollars, such as subsidies from an advance premium tax credit program. Note that this rule has some exceptions; so be sure to consult a tax professional when deciding the best way to file your return. Also be wary claiming this deduction if you claimed premium subsidy. Your tax refund could be diminished as a result. Due to the complex nature of health care deductions, it’s essential that you discuss this topic with a tax preparer prior to making any decisions relating to them. Doing this will ensure you maximize the tax benefits available through deductions. For help or more information please reach out! We would be more than happy to provide our wide array of comprehensive tax services tailored specifically towards individuals, families and businesses of all sizes – feel free to get in touch.

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