Are Health Care Insurance Premiums Tax Deductible?
Are Health Care Insurance Premiums Tax Deductible?

Are Health Care Insurance Premiums Tax Deductible?

Health care insurance premiums are an expensive necessity for most Americans, and their cost can have a direct effect on how much you owe in taxes each year. This is particularly true for individuals in higher tax brackets who must pay both income taxes and payroll taxes on their wages. Therefore, it’s crucial that individuals understand if health care premiums are tax deductible so that they can take full advantage of any possible deductions they might be eligible for.

Employer-paid premiums for health insurance policies typically aren’t tax deductible as your employer has already taken advantage of tax savings by paying them with pretax dollars, though you may still deduct your own personal health care expenses such as dental and vision expenses or prescription drug costs – however the rules for deducting these vary depending on whether or not you’re employed or self-employed.

As a W-2 employee, your health insurance premiums may only qualify as an itemized deduction if they exceed 7.5% of your adjusted gross income – an impossible threshold that most don’t claim as an itemized deduction.

As an added benefit for self-employed workers, health insurance premiums are 100% tax deductible as part of their gross income adjustment. Thanks to longstanding legislation passed by Congress that allows self-employed people to reduce their taxable income through this deduction.

Self-employed workers who make $50,000 per year and pay $1,500 monthly health insurance premiums could potentially take advantage of this deduction and benefit more from it as their income rises – saving $254 in taxes by using it fully. For example, freelance writer’s taxable income increases when they do not claim it as it reduces taxable income to just $46,200 which results in saving $254 on taxes!

As long as you itemize, those who aren’t self-employed can also deduct premiums paid for qualified long-term care insurance premiums on their taxes if itemizing their deductions. However, the rules for this deduction can be complicated and there may be limits to what can be claimed.

As an itemized deduction on IRS Form 1040, qualified long-term care premiums up to $10,700 are generally tax deductible as an itemized deduction. For more information about this deduction please see Publication 969 from IRS. However if you combine an HSA with high deductible health plans then an even greater deduction could be possible as contributions made with pretax money could make this possible.