Can I deduct health insurance premiums?

November 26, 2019 by Glynis Miller, CPA, MST
Health Insurance

Yes, under certain conditions, health insurance premiums are tax-deductible. Generally, the health insurance premiums can be deducted in one of two ways, either by claiming the premiums paid as qualifying medical expenses when itemizing deductions or as a self-employed health insurance deduction. The health insurance premiums must be considered to have been paid out of your own pocket. This generally means that the individual paid for the premiums from their own money.

Qualifying Health Insurance:
Medical and dental insurance premiums paid can qualify for the deduction. Long-term care insurance premiums can be deducted up to specific pre-defined limitations based on age and applied separately to the taxpayer and spouse. Medicare Part B & D premiums are includible for seniors. However, Medicare Part A can only be deducted when the taxpayer is enrolled voluntarily and is not a recipient of Social Security. In some cases, a taxpayer may qualify to deduct the health insurance premiums as itemized deductions or as the self-employed health insurance. While the taxpayer can only deduct the premiums once, they can choose to deduct them by the method that is most beneficial for them.

Claimed as Itemized Deductions:
When claimed as an itemized deduction, health insurance premiums are reported along with other qualifying medical expenses. Medical expenses are generally subject to certain adjusted gross income limitations, but when medical expenses (which include out of pocket health insurance premiums) exceed those limitations, they can be deducted. Be careful if the health insurance premiums are paid through a payroll deduction. Why? Well, oftentimes, an employer may be deducting the health insurance premiums from the gross earnings, prior to calculating any taxes. If this is the case, then the premiums are said to be paid before taxes and not after taxes. So, this would mean that the insurance premiums would not be deductible. Only the premiums paid after taxes are deductible.

Claimed as Self-employed Health Insurance Deduction:
When health insurance premiums are claimed as a self-employed health insurance deduction, the insurance cannot be provided through any type of employer-subsidized health plan. For example, one spouse works for Target, and the other spouse is self-employed, but the health insurance they use has been obtained through a health plan offered by Target. So long as the insurance was purchased with the after-tax income of the Target employee-spouse, the premiums would be deductible as an itemized deduction. However, the premiums would not be deductible as self-employed health insurance. If instead the health plan had been obtained by the self-employed spouse, then the insurance premiums could be deducted as self-employed health insurance. If an individual is self-employed as a partner in a partnership, the insurance premiums must be included in the guaranteed payments received from the partnership. While a more than 2% shareholder in an S Corporation can pay the premiums directly or pay the premiums through the S Corporation. There are certain limitations on the self-employed health insurance deduction based on the amount of eligible health insurance premiums or net profit, self-employed tax deduction, or any qualified retirement plan contribution deductions.

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Glynis Miller, CPA, MST
Tax Content Developer

 

Glynis began her career with TaxAudit in February 2006 as a Seasonal Tax Return Reviewer. In December of 2008, she joined the permanent staff as an Audit Representative. Glynis has been an instructor for both continuing education tax classes and various staff training classes since 2009. Glynis holds a Bachelor of Science Degree in Accounting and a Master’s Degree in Taxation. Prior to joining TaxAudit, Glynis worked in private and public sectors of accounting. She has worked at regional accounting firms preparing tax returns, financial statements, and audit services. Her professional career has spanned over a wide variety of industries from advertising, construction, commercial real estate, farming, manufacturing and more. In 2017, Glynis joined the Learning and Development Department as a Tax Content Developer. She is providing a wealth of accounting and tax knowledge, writing skills, current job awareness, and a very cross-functional skillset to the team. 


 

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