Are medical insurance premiums tax deductible ?

The  very common question  is medical insurance premiums tax deductible? has no definite answer. So most cases yes, but there are situation or types of health insurance for which you can’t claim tax deduction.  Let us start with the tax deduction for premium on health insurance for employed persons.

is health insurance tax deductible for employee?

The rule says is that if you paid the premium , you can claim deduction  in Form 1040 under Schedule A . However ,if your employer or government pays medical insurance premium on your behalf , then it is not deductible in your 1040  . On the same logic,if your employer pays part of your health insurance premiums and you pay the other part, you cannot claim a deduction for the part your employer paid.

Even when you bought  health insurance  and received an advanced premium tax credit under Affordable Care Act that decreased the cost of your health insurance, only  the premium portion that you paid out of your own pocket might be deductible.

The premiums you pay for job-based health insurance usually come out of your paycheck before your income taxes are calculated. If you’ve paid premiums with pre-tax money, you cannot claim them as a deductible expense.How will you know if the insurance premium is paid pre or after tax money ?

Simple ! Scrutinize the W-2,if your premiums are paid with per-tax money, that money will not be included as income in Box1 (wages) on your W-2. In contrast , if your premiums weren’t included as income on your W-2, you cannot take them as a deduction because they’re already tax-free.

is medical insurance tax deductible for self employed?

Yes it is. If you’re self-employed , you may be able to write off your medical insurance premiums upto the extent of income earned. Important to understand is that expense in form of health insurance premium is considered allowable expense from the gross business or profession income in case of self employed case . So this different from tax deduction of insurance premium allowed to employed person who get this deduction under Schedule A of the Dorm 1040

In a way the self employed person are having a tax advantage than employed persons as they simple reduce the cost of insurance from there business income and do no go through many conditionals that people getting insurance premium as itemized deduction

How much insurance  premium can be claimed deductions

For employed persons , the limit on deduction for medical cost is 10% of the adjusted gross income . So If you’re taking your health insurance as a medical-expense deduction on Schedule A of return 1040 , add up your health insurance premiums and all of your eligible un-reimbursed medical expenses . If the total of such expense is greater than 10 percent of your adjusted gross income, the only you can deduct the part that exceeds 10 percent of your income.

In case of self employment you can claim an adjustment to your income for health insurance premiums only upto  your income from employment (before such adjustment).

Some Special Rules with Medicare

Medicare Part A premiums are usually not deductible because if you or your spouse are employed then you get Medicare A part automatically as part of social security .

You may be able to deduct your Medicare Part A premiums, however, if you and your spouse:

  • –  Didn’t pay Medicare taxes while you were working, and
  • –  You’re not covered under social security, and
  • –  You voluntarily enrolled in Medicare Part A, and
  • –  You pay monthly Part A premiums.

In case of other part of medicare , you must total the amount of premium paid on

  1. Part B (supplemental medical insurance),
  2. Part C (HMO or Advantage Plans),
  3. Part D (voluntary prescription drug insurance program) and
  4. Medigap supplemental premiums

If the the total amounts ( 1+2+3+4) is more than  7.5 percent of income, if you can claim insurance premium deduction for extra.

Read irs publication 502, medical and dental expenses

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