Are Health Insurance Premiums Tax Deductible In The USA?

Health insurance premiums are one of the most pressing issues facing American families today. With health care costs rapidly increasing, many people have been looking for ways to reduce their expenses, and some even turn towards tax deductibility as an option.

This article will discuss health care deductions in detail so that you can determine if your monthly payment goes toward a premium or not. Read on to learn and determine if your health insurance premiums are tax-deductible.

What Is Health Insurance?

Health insurance is a type of insurance that covers the cost of medical care. Health Insurance can be purchased by an employer, group insurance (COBRA), the marketplace, or Medicare. These are different health insurance policies, and each has its premiums.

Health insurance is one of the most important types of insurance you can have. It can help protect you from high medical costs if you need to see a doctor or go to the hospital.

What Are the Benefits of Health Insurance?

Health insurance is a vital part of your financial security. It can help you pay for medical care if you are injured or become ill, protecting you from high medical costs. Some of the benefits of health insurance include:

Coverage for Preventive Care

Health insurance policies typically cover preventive care, such as routine check-ups and screenings. This can help you stay healthy and catch health problems early. Also, many health insurance policies offer discounts on other health care services.

Coverage for Hospital Stays

If you are hospitalized, your health insurance policy will help pay for your stay. Most policies also cover other types of medical care, such as doctor visits and prescription drugs.

Protection from High Medical Costs

If you have health insurance, you are less likely to pay for medical costs out of pocket. This can be helpful if you have a health emergency. Health insurance policies typically limit how much they will pay for medical care. However, this can still help you save money if you need to go to the hospital or see a doctor.

What Are Health Insurance Premiums?

Health insurance premiums are the payments you make to maintain your health insurance policy. They are typically paid on a monthly or annual basis.

These premiums can vary depending on the type of health insurance you have. For example, employer-sponsored health insurance policies typically have lower premiums than individual policies.

Are Health Insurance Premiums Tax-Deductible?

Your health insurance premiums may be tax-deductible, depending on the type of health insurance policy you have and where you purchased it.

Most of the time, health insurance premiums are tax-deductible. However, there are a few exceptions. For example, if you have health insurance through the marketplace, your premiums are not tax-deductible.

Let’s look at what health insurance premiums are tax-deductible and not.

Which Health Insurance Premiums Are Tax-Deductible?

Most health insurance premiums are tax-deductible. This includes premiums for the marketplace, COBRA, and Medicare policies.

Marketplace premiums are typically non-taxable income because the government offers subsidies to offset any increased premium costs. If you are self-employed and purchase an individual health insurance plan, these premiums are considered taxable income.

COBRA premiums are generally non-taxable income because they are paid with pre-tax dollars from your employer. If you are no longer employed and pay COBRA premiums out of pocket, these premiums are considered taxable income.

Medicare Part A and B premiums are considered to be tax-deductible. However, there are some exceptions. For example, if you have Medicare Part C (an Advantage Plan) or Part D (a Prescription Drug Plan), your premiums are not tax-deductible.

You have to itemize your deductions to claim your health insurance premiums as a tax deduction. You can only deduct the amount of premiums that exceed 7.5% of your adjusted gross income (AGI).

Which Medical Expenses Are Tax-Deductible?

To deduct your health insurance premiums, you must have medical expenses greater than the amount you would have paid in taxes.

Medical expenses are tax-deductible when they are above a certain percentage of your adjusted gross income (AGI). This percentage changes from year to year. Deductible medical expenses include payments for:

● Doctor visits

● Dental care

● Prescription drugs

● Vision care

● Mental health treatments

● Insurance premiums

● Long-term care expenses

● Out of pocket medical costs

Which Health Insurance Premiums Are Not Tax-Deductible?

There are a few health insurance premiums that are not tax-deductible. These include premiums for policies you purchase through employer-sponsored health plans.

You cannot deduct the premiums for these policies if you are already claiming a deduction for your employer’s contributions to the plan. This is because these policies are considered part of your income.

You cannot deduct the premiums for health insurance policies you purchase as an individual because insurance policies are not medical expenses.

What Are the Types of Health Insurance Policies?

There are four main health insurance policies: employer-sponsored, group insurance (COBRA), marketplace, and Medicare. Each type of health insurance policy has different premiums that are either tax-deductible or not tax-deductible.

What Are the Premiums for Employer-Sponsored Health Plans?

Employer-sponsored health plans are the most common type of health insurance. These plans are offered through your employer and are usually less expensive than other types of health insurance policies.

The premiums for employer-sponsored health plans are not tax-deductible. However, your employer’s contributions to the plan are tax-deductible and considered a business expense.

What Are the Premiums for COBRA Health Plans?

COBRA is a health insurance plan that allows you to keep your health insurance policy after you leave your job.

The premiums for COBRA are tax-deductible. However, you must pay for the full cost of the policy yourself. Your employer is not required to contribute any money to the plan.

What Are the Premiums for Marketplace Health Plans?

Marketplace health plans are health insurance policies that you purchase through the government.

The premiums for marketplace health plans are tax-deductible. However, you may not be able to claim this deduction if you receive subsidies to help pay for the policy.

What Are the Premiums for Medicare Health Plans?

Medicare is a health insurance policy for people over the age of 65. The premiums for Medicare are tax-deductible.

However, you cannot claim this deduction if you receive Social Security benefits. This is because your Social Security benefits are considered taxable income.

What Factors Determine How Much of Your Premiums Are Tax-Deductible?

A few factors determine how much of your health insurance premiums are tax-deductible. Your filing status and the amount of your deduction type are two of the most important factors.

Filing Status

Your filing status is the type of tax return you file each year. There are five filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. Your filing status determines the amount of your deduction.

Deduction Type

The amount of your deduction is the total amount of all deductible expenses taken out on a tax return. There are two types: itemized and standard.

If you have chosen standard deduction, you can only claim the amount of your health insurance premiums that exceed the standard deduction.

If you have chosen itemized deduction, you can claim all of your itemized deductions that exceed 7.5% of your adjusted gross income.

What Is Standard Deduction?

The standard deduction is an amount that is automatically deducted from your income. It lowers your income by one fixed amount. There is a standard deduction for every filing status. Let’s take a look at the standard deduction for each filing status:

What Is the Standard Deduction for Single Taxpayers?

The standard deduction for single taxpayers is $12,550. This means that you can claim your health insurance premiums as a tax deduction if they are more than $12,550.

What Is the Standard Deduction for Married Taxpayers Filing Jointly?

The standard deduction for married taxpayers filing jointly is $25,100. This means that you can claim your health insurance premiums as a tax deduction if they are more than $25,100.

What Is the Standard Deduction for Married Taxpayers Filing Separately?

The standard deduction for married taxpayers filing separately is $12,550. This means that you can claim your health insurance premiums as a tax deduction if they are more than $12,550.

What Is the Standard Deduction for Head of Household?

The standard deduction for the head of household is $18,800. This means that you can claim your health insurance premiums as a tax deduction if they are more than $18,800.

What Is the Standard Deduction for Qualifying Widow(er) with Dependent Child?

The standard deduction for a qualifying widow(er) with a dependent child is $25,100. This means that you can claim your health insurance premiums as a tax deduction if they are more than $25,100.

What Is Itemized Deduction?

Itemized deductions are expenses taken out of an individual’s taxable income. These expenses must exceed a certain percentage of the income to be deductible.

Generally, this percentage is seven and a half percent of your adjusted gross income. You can claim all of your itemized deductions if they exceed the seven and a half percent of your adjusted gross income.

How to Calculate Your Healthcare Deductions?

Calculating your healthcare deductions is relatively simple. Simply add up the premiums you pay every month, along with any other healthcare costs, and see if they exceed certain numbers based on your chosen deduction plan. Let’s take a more in-depth look at this process.

Calculating Health Insurance Deductions for Standard Deduction

As discussed above, the standard deduction is a flat-dollar reduction of your AGI. You are essentially opting out of itemizing deductions when you take this deduction.

The biggest benefit to the standard deduction is that it makes the tax-prep process much simpler. For example, if you are single, have an AGI of $70,000, and decide to take the standard deduction, your taxable income would be $57,450. You can only claim the amount of premiums that exceed $12,550.

Calculating Health Insurance Deductions for Itemized Deduction

Those who decide to itemize can only deduct allowable medical expenses that exceed 7.5% of their AGI.

For example, if you had an AGI of $100,000 and health insurance premiums of $7,000, you would not be able to deduct because the premiums did not exceed 7.5% of your net AGI ($100,000 x 7.5% = $7,500 threshold).

But suppose you had another $2,000 in medical expenses along with your $7,000 in health insurance premiums. This would be a total of $9,000, which would exceed the $7,500 IRS threshold based on your AGI. Therefore, you would be able to claim a $1,500 deduction on your tax return.

What Are the Other Ways to Lower Your Tax Bill?

There are a few other ways to lower your tax bill. You can claim the child tax credit if you have children under 17. You can also claim the earned income tax credit if you are working and have low to moderate-income.

Additionally, you can claim the American Opportunity Tax Credit or the Lifetime Learning Credit to pay for college expenses. You can also claim the mortgage interest deduction if you are a homeowner.

Lastly, you can contribute to a health savings account or an IRA. These are tax-deductible contributions and can help lower your taxable income.

Conclusion

Health insurance premiums are a typical expense that can be deducted from your taxes. However, not all health insurance premiums are tax-deductible. To claim your health insurance premiums as a tax deduction, you will need to itemize your deductions on your tax return. You can also claim the amount of your healthcare deductions that are more than the standard deduction for your filing status.

You cannot claim your health insurance premiums as a tax deduction if you are claimed as a dependent on someone else’s tax return. So, be sure to check with a tax professional to see if you are eligible to claim your health insurance premiums as a tax deduction.