Health Insurance Premiums and Medical Expenses Are Tax-Deductible only in Certain Conditions

Health Insurance Premiums

Health insurance is among the largest monthly expenses for some of the people in the U.S. Hence, they lookout for ways to reduce their costs through tax breaks on their monthly health insurance premiums. Medical expenses take a toll on people’s budgets, especially in case of unforeseen medical emergencies that are not completely covered by their insurance carrier. To provide some relief to such people, the Internal Revenue Service makes some of these expenses partly tax-deductible. However, people should keep in mind that not all health insurance premiums are tax-deductible. It depends on factors like how people have obtained health insurance, the amount they spend on premiums and medical costs, and whether they are employees or self-employed.

Conditions when Health Insurance Premium becomes Eligible for Tax Deduction

  • Health insurance premiums become eligible for a tax deduction, only if the premium is paid by people themselves.
  • Health insurance premiums that are paid by employers or the government are not eligible for a tax deduction.

Some of the other Medical Expenses that are tax-deductible

  • People whose health insurance premium becomes eligible for tax-deduction can include all of their out-of-pocket medical expenses suggested by a doctor or healthcare professional.
  • Some of the common items that people can deduct from taxes are medical tests, surgeries, prescription drugs, medical appointments, along with durable items like glasses, wheelchairs, home care, guide dog, or service animal and wigs for patients.
  • People can also deduct commuting expenses that are incurred towards visiting the doctor like cab or bus fares, parking fees, tolls, and even some lodging costs and airfare for out-of-town treatments.
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People should remember that they write-off only out-of-pocket expenses like copays, deductibles, etc., and not the bills that are already covered by their insurers. Any medical service or equipment is eligible for a tax deduction if it is recommended or prescribed by a medical professional. These things can even include whirlpools for severe arthritis patients and air purification systems for asthma patients. On the contrary, vitamins and over-the-counter medication are generally not eligible for deductions.

Deductions for People having Employer-sponsored Plans

A health insurance premium of the people enrolled in an employer-sponsored plan are paid through a payroll deduction and are generally made with pre-tax dollars. So, these people are not allowed to claim a year-end tax deduction. A major portion of the premium of the people having employer-sponsored health insurance is paid by the employer. Even the remaining amount that people pay themselves are payroll deducted pre-tax. So, these people cannot deduct their premiums on their tax returns if the premiums were paid with pre-tax money throughout the year.

Deductions for Self-employed 

Self-employed people who pay their health insurance premiums to cover themselves and their dependents can file for a tax deduction, as long as they are obtaining health insurance for self and they are not eligible to participate in a health plan that is subsidized by their spouse’s employer. Expenses like health insurance premium, and out-of-pocket expenses incurred upon doctor visits, surgeries, dental care, mental care, vision care qualify for this deduction. Like for instance, if an individual’s gross income for the year was $50,000. So any qualified expenses exceeding ten percent of the gross income i.e. $5,000 are deductible. Thus, if your medical expenses including premiums were $6,000 in total, then you will be able to deduct $1,000 from your taxable income.

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People need to know that their health insurance premiums and medical expenses are tax-deductible, only if they pay themselves for such expenses. Besides, people’s financial condition, how they receive health coverage, are some of the other factors that play a crucial role in determining that their premium costs will be eligible for tax deductions or not. For instance, self-employed people tax deductions would differ from people who receive coverage through an employer-sponsored plan. While claiming for tax deductions, the IRS allows people to either select a standard deduction or itemize their medical expenses. People’s options usually depend on their past year’s medical expenses.

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