Understanding whether health care premiums are tax deductible can be complex. A lot depends on whether or not you’re self-employed, how you pay for coverage and more. For assistance or guidance regarding your specific circumstances it’s always wise to speak to a tax professional; here’s a brief overview of some key rules.
Typically, when paying for insurance through an employer-sponsored plan or Medicare Advantage plan at work, its premiums aren’t tax deductible as they’re already made out of pre-tax money and don’t appear as income on your Form W-2.
However, if you are self-employed and purchase health insurance through the individual marketplace or exchange in your state, the cost of premiums can be claimed as medical expenses on your tax return if you itemize deductions. This holds true whether or not coverage was purchased off exchange, and also applies even if an advanced premium subsidy from the government helps offset some or all of their cost.
Premiums paid by employees of a small business are tax-deductible up to 7.5% of your adjusted gross income as part of its overall costs.
This rule also applies to employees of large companies who purchase health insurance through an individual marketplace or Exchange in their state, but not those receiving health coverage through their employer or union. There is however an indirect workaround available: if eligible for premium tax credits in an Exchange but choose not to accept them they can still deduct individual market premiums on their taxes.
There are also other ways to cut costs associated with health insurance premiums, including flexible spending accounts and Health Savings Accounts offered by employers that can help cover some health care costs. And for self-employed people looking for health coverage they can create a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
As there is much detail involved with health insurance premiums and whether or not they qualify as tax deductible expenses, it’s wise to consult a tax professional regarding your specific situation. In the meantime, though, be sure to keep your health coverage up-to-date and enroll during your state’s open enrollment window or special enrollment periods should a qualifying life event arise outside this window.