Are Health Insurance Premiums Tax-Deductible?

Health insurance is one of their most significant monthly expenses for some Americans, leading them to wonder what medical expenses are tax-deductible to reduce their bill. As healthcare prices rise, some consumers seek to reduce their costs through tax breaks on their monthly health insurance premiums.

If you are enrolled in an employer-sponsored health insurance plan, your premiums may already be tax-free. If your premiums are made through a payroll deduction plan, they are likely made with pre-tax dollars, so you would not be allowed to claim a year-end tax deduction.

However, you may still be able to claim a deduction if your total healthcare costs for the year are high enough. 

Self-employed individuals may be qualified to write off their health insurance premiums, but only if they meet specific criteria.1 This article will explore tax-deductible medical expenses, including the requirements for eligibility.

Health insurance premiums, the amount paid up front to keep an insurance policy active, have been steadily increasing as healthcare costs have increased in the United States.

Premiums can be considered the "maintenance fee" for a healthcare policy, not including other payments that consumers have to pay, such as deductibles, co-pays, and additional out-of-pocket costs.

When the Affordable Care Act was passed by President Barack Obama in 2010, it allowed certain families to access premium .

According to research by the Kaiser Family Foundation, a non-profit organization that focuses on healthcare issues in the U.S., roughly half of Americans receive health insurance through an employer-based plan.

If your medical premiums are deducted through a payroll deduction plan, it's more than likely that you're covering your share of your insurance premium with pre-tax dollars. 

So, if you deducted your premiums at the end of the year, you'd effectively be deducting that expense twice.

However, you may be able to deduct some of your premiums if you purchase health insurance on your own using after-tax dollars. 

For the 2021 and 2022 tax years, you’re allowed to deduct any qualified unreimbursed healthcare expenses you paid for yourself, your spouse, or your dependents—but only if they exceed 7.5% of your adjusted gross income (AGI).

AGI is a modification of your gross income. It includes all your sources of income—wages, dividends, spousal support, capital gains, interest income, royalties, rental income, and retirement distributions—minus any number of allowable deductions from your income, including retirement plan contributions, student loan interest payments, losses incurred from the sale or exchange of property, early-withdrawal penalties levied by financial institutions, among others.

Suppose, for instance, that your adjusted gross income for the year was $50,000. Seven and a half percent of that amount is $3,750, so any qualified expenses exceeding that amount are deductible. 

If your total medical expenses, including premiums, were $6,000 in total, you'd be able to deduct $2,250 from your taxable income.

Make sure you don't include any reimbursed expenses when doing your calculation, such as premium tax credits. 

Some individuals are eligible for premium tax credits if they've purchased their insurance through the Health Insurance Marketplace, also known as "The Marketplace."

It would help if you also left off any expenses reimbursed by your insurance company or your employer. 

To deduct medical expenses, you have to itemize your deductions rather than electing the standard deduction. 

Therefore, it is in your best interest to ensure that your total itemized deductions exceed the standard deduction amount before making this decision.

For the tax year 2021, the standard deduction is $12,550 for those filing an individual return and $25,100 for married couples filing jointly, and for the tax year 2022, the standard deduction goes up to $19,950 for individuals and $25,900 for married couples who file joint returns.

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