Are Health Insurance Premiums Tax Deductible? (Dr. Tax)
Are health insurance premiums tax deductible? The answer is yes, but it has some limitations because it depends on the amount spent on medical expenses and also on the kind of health care services utilized. One of the points of contention is the type of services that qualify as medical expenses.
For that reason, fewer tax payers will qualify for this deduction as you will notice after reading this article below.
The Taxpayer
As a taxpayer, the premium of your health insurance expenses or the cost is deductible in most cases. In fact, it is one of the personal deductions to which any taxpayer is entitled.
And best of all; it is deductible even if you do not have the invoice! You just have to prove that the insurance policy for medical expenses is yours, your spouse or the person with whom you live in common with, in addition to your ascendants or descendants in direct line, that is your parents or your children.
That way you can expect to have a tax refund balance. This means that the more items that you can claim on your taxes, the better it is for you to see additional refund amounts and health insurance is one of the tax deductible items that will get you there.
Who Qualifies?
This concept is governed by the IRS Income Tax Law, which stipulates that individuals may deduct payments for medical and dental fees, for professional services in matters of psychology and nutrition provided by people with a legally issued and registered professional title. You can deduct amounts charged for health services by the competent authorities, as well as hospital expenses and insurance premiums for medical expenses.
If you pay tuition for your children who may be autistic or have other special needs, by law, this is a medical expense, which would qualify as a tax deductible item on your tax return. However, many consumers fail to realize this and oftentimes, they might miss out on this deduction; especially, if they are doing the taxes on their own. If using professional tax services, then the deductions will be applied.
Maintain Proof
Be aware that, for the deductions to be valid, it is very important that the payment of your insurance is made electronically, that is, with a credit or debit card, or through bank transfer, but not in cash! Why is this so?
With a credit card or debit card, you will have proof that you have paid the deductible fees. If your dentists, doctors, psychologists and nutritionists do not accept these forms of payment, you can write a check as well.
The 7.5% Rule
In 2023, the IRS allows taxpayers to deduct total qualified unreimbursed health care expenses for the year that exceed 7.5% of their Adjusted Gross Income (AGI). For example, let's say your AGI is $50,000 and your medical expenses are $6,000. 7.5% of your AGI is $3,750, so you could only deduct up to $2,250.
Significant Amounts
If you’re thinking ‘are health insurance premiums deductible?’ then you should be aware of the following information. Unless your medical expenses are significant and you have high insurance premiums, this 7.5% rule should be the last resort because it wouldn’t be to your advantage mathematically. Instead, you should include these amounts in the itemized deductions so that you can go over the 7.5% threshold rule. For example, if your AGI in 2020 was $60,000, you wouldn’t be able to deduct your health insurance premium, if you made payment of $4,500 within the tax year. Why? The 7.5% rule calculates your AGI as $4,500.
The Threshold
This means you have no excess payment of what you are allowed under the law on tax day. However, if you paid an additional $3,000 in health insurance premium during the course of the same year 2020, then you would have spent $7,500 cumulatively for medical expenses. This means that you would have gone over the 7.5% rule threshold. Therefore, you would be able to claim the whole $3,000 on your tax return as itemized deductions.
However, this threshold only applies to the AGI and not your entire income. After taking certain deductions on your Schedule 1, Tax Form 1040, it reduces the total from gross to taxable income.
What You Cannot Deduct
You should be aware of what you cannot deduct when it comes to health insurance premiums. If you did a nose job or boob job with cosmetic surgery, this is not deductible and neither are gym fees, over the counter drugs and personal hygiene products. You won’t be able to deduct any expenses related to a flexible spending account or health savings account.
Generally, you will be able to deduct most of your medical expenses as long as they are paid out of pocket and this also includes:
Medical Supplies
Prescription Drugs
Surgeries
Medical and Dental Treatments
Preventative Care
The Self-Employed
If you have health insurance and you are self-employed, you will have many tax benefits and will pay less tax amounts when filing your tax return.
Being self-employed offers a tax advantage due to the fact that it is considered a deductible expense. If you are self-employed, you can deduct the health insurance premiums as an expense in your income statement, with these conditions and limits according to the tax laws.
When contracting a company to receive health insurance as a self employed person, you must be aware that there is a maximum for the deductible expense that you can claim, and that the excess part will be taxed as income in kind.
The Modification
The law was modified so that self-employed workers have the right to deduct the expense involved in paying premiums to insurance companies. Now, the self-employed person is not the only one who can make his/her health insurance expense deductible.
By law, you also have the right to deduct the medical expenses of each family member who meets the requirements. Specifically, subject to this tax benefit are your spouse and each of your children under the age of twenty-five with whom you live.
The Employees
Employees who get health insurance from an employer and pay for it through deductions from their wages do not qualify for the tax deductible health insurance premiums.
If you are not sure how you pay for insurance, check your weekly or monthly paystubs or ask your HR department or employer. If your tax withholding is calculated on the balance after the health insurance premiums are withdrawn, this would be using your pre-tax dollars and that is why you wouldn’t be qualified. It is clear than that you won’t be able to deduct health insurance, if your employer is the one that pays for the health insurance coverage.
Let’s say that you visit the doctor and your bill is $100 for that one visit. If you have a health insurance plan that only covers 75% of that amount, you won’t be able to claim the entire $100 as a deduction. What does this mean? You can only claim $25 out of the $100 since the health insurance plan covers the rest.
Completing the Form
To claim your health insurance premium deductions, you must complete the Form 1040 and Schedule A provided by the IRS. Each deduction must be itemized. It is recommended that you keep all receipts; just in case you get audited within a three year period.
Conclusion
Our attempt to answer the question: ‘Are health insurance premiums tax deductible?’ seems to indicate that there are several variables. If you are not a tax professional, you may be confused. There are some expenses that you can claim on your tax return as an employee or self employed person. It is best that you check on the list created on the IRS website to get a better idea of which ones meet your qualification.
Take a Stroll through the Goalry Mall
If you are curious about this topic and want to get a better understanding, check out the financial services at Goalry, which will be launched in April 2021. The Goalry mall is a financial mall, which unifies finance and allows members to do all things related to finance once logged in. You will have a different experience with each financial product within the mall stores; depending on your specific needs and goals. In this case, it is the Taxry store, which is all about taxes.
Don't Stress over Taxes! We Help You Find the Best Offer.