Is Health Insurance Tax Deductible?

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Health insurance premiums are tax deductible in some circumstances.

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If your health insurance is tax-deductible, taking a tax write-off for health insurance premiums can have a big impact on how much you owe Uncle Sam. However, the rules about when health insurance is tax-deductible and how much can be deducted are complicated. Here’s a primer on the tax deduction for health insurance.

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No Deduction for Premiums Someone Else Paid on Your Behalf

You can’t take a tax deduction for health insurance unless you paid for it. If someone like an employer or the government pays your health insurance premiums, those premiums aren’t deductible. If your employer pays part of your health insurance premiums and you pay the other part, you can’t claim a deduction for the part that your employer paid (and in almost all cases, the part you pay is taken out of your check pre-tax, which means you won't be able to deduct it on your tax return, as that would be double-dipping).

Did you buy individual or family health insurance on an Affordable Care Act health insurance exchange? Any advanced payment subsidy money that decreased the cost of your health insurance premiums can’t be claimed as a deduction, since it's already a tax credit. While the portion of your premiums that are paid by the premium tax credit can’t be claimed as a deduction, the premium money you paid out of your own pocket might be deductible. You’ll learn more about that later.

No deduction for Premiums You Paid With Pre-Tax Money.

The premiums you pay for job-based health insurance usually come out of your paycheck before your income taxes are calculated. This makes your income appear smaller, similar to the way money you contribute to your 401(K) retirement savings makes your income appear smaller. Since these premiums were paid with pre-tax money, they’re already income-tax-free; you can’t claim them as a deductible expense.

Not sure if your health insurance premiums are taken out of your paycheck pre-tax or after-tax? Employer-sponsored health insurance premiums are almost always paid with pre-tax money, but to double-check, you can either ask your payroll department or do a bit of math. If your premiums are paid with pre-tax money, that money won’t be included as income on your W-2. If your premiums are paid with after-tax money, that money will be included as income on your W-2. If your premiums weren’t included as income on your W-2, you can’t take them as a deduction because they’re already tax-free (even if they were paid with after-tax money, which is quite rare, your ability to deduct them will be limited, as described below).

When Health Insurance Is Tax-Deductible

There are a few instances when health insurance is tax-deductible.

You're Self-Employed

If you’re self-employed, your health insurance premiums may be deductible.

If you’re self-employed and not eligible for an employer-sponsored health plan through your spouse’s job (or another job that you hold), you may be able to write-off your health insurance premiums. This includes premiums for your spouse and dependents as well, and can include premiums for Medicare Part A, Part B, Part C (Medicare Advantage) and Part D. But you can’t write off more in health insurance premiums than you earned from your self-employment.

The health insurance deduction for self-employed people is taken on Schedule 1 of Form 1040 (Line 16 of the 2020 Schedule 1 for Form 1040). This makes it an "above the line" deduction, which means it reduces your adjusted gross income. There are several advantages to the way the self-employed health insurance deduction works:

  • If you don’t itemize your deductions, you’ll still benefit from the income-adjustment for your health insurance premiums (and very few people itemize now that the Tax Cuts and Jobs Act has greatly increased the standard deduction).
  • Many deductions are phased out at higher income levels. Decreasing your income by the amount of your yearly health insurance premiums may help you stay beneath the phase-out level for other deductions. This can include eligibility for premium tax credits, which can help to offset the cost of your health insurance. But this can also be a circular process, as the amount that's paid with premium tax credits cannot also be deducted via the self-employed health insurance deduction. The IRS has a process for determining how much your deduction and premium subsidy are in that sort of circumstance.
  • Some deductions can only be taken if they exceed a certain percentage of your income. The smaller your income appears, the easier it is to exceed that threshold and claim those deductions.

You Pay Your Own Premiums and Itemize Your Deductions

If you paid your health insurance premiums with your own after-tax money, they may be deductible depending on how much you spend and whether you itemize your deductions (this is assuming you're not self-employed; if you are, you don't have to itemize to deduct your health insurance premiums, as described above).

For example, if you bought an individual or family health insurance policy on your state’s health insurance exchange or directly from an insurance company, you might be able to include the money you paid (out of your own pocket, not including any premium subsidy that was paid on your behalf) toward your monthly health insurance premiums as an itemized tax deduction. However, the deduction for total medical expenses (including premiums) is limited, and the amount you can deduct will depend on your income. You'll learn more about this limitation below.

Some Medicare premiums can be counted towards your total medical expenses. You may be able to deduct a portion of your total medical expenses if you itemize your deductions, as described below. Medicare Part B, Part C (Medicare Advantage), Part D prescription coverage, and Medigap supplemental premiums count towards your total medical expenses. (Note that Medigap premiums cannot be deducted under the self-employed health insurance deduction, described above. But they can be included as total medical expenses for people who are going to itemize their deductions).

Most people do not pay a premium for Medicare Part A. But if you do, you can count them in your total medical expenses. If you’re covered under Social Security (even if you haven't yet started to collect your retirement benefits), you get Medicare Part A automatically when you turn 65, without any premiums, because you or your spouse paid payroll taxes for it while you were working. This is the case for most people, and in this case, there’s nothing you can deduct for Medicare Part A.

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

  • didn’t pay Medicare taxes for at least ten years while you were working, and
  • you voluntarily enrolled in Medicare Part A, and
  • you pay monthly Part A premiums.

The Amount of Your Health Insurance Deduction Is Limited

If you’re able to take an itemized deduction for health insurance, there are limits to how much of your premiums you can write off.

If you’re itemizing your deductions and including your health insurance premiums as a medical expense deduction, you can only deduct medical expenses that exceed 7.5% of your adjusted gross income (this threshold will increase to 10% after the end of 2020).

Add up your qualified health insurance premiums and all of your eligible unreimbursed medical expenses like your deductible, copays, and coinsurance. If all of those together are greater than 7.5% of your adjusted gross income, you can deduct the part that exceeds 7.5% of your income. That amount would be included along with the other itemized deductions that you have. But keep in mind that very few people find it worthwhile to itemize deductions now that the standard deduction is so much larger than it used to be.

If you’re self-employed and claiming the self-employed health insurance deduction on Schedule 1 of the Form 1040, you don’t have to worry about the 7.5% of income threshold, because you’re writing the premiums off as an adjustment to your income rather than as a deduction. In your case, the amount you can claim is limited by your profitability. You can’t claim an adjustment to your income for health insurance premiums that are larger than the income you generate by being self-employed. But as long as you have the income to support it, you're allowed to include the full amount you paid for your health insurance and it will be subtracted from your income before your taxes are calculated. (Note that if you're a more-than-2% shareholder of an S-Corp and you buy health insurance in your own name, you can only use the self-employed health insurance deduction if the S-Corp reimburses you for the premiums and includes the reimbursed amount on your W-2. In that case, your deduction is limited to no more than the S-Corp reimbursed you and reported on your W-2.)

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Article Sources
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  2. Journal of Accountancy. Self-employed can deduct Medicare premiums, IRS Chief Counsel advises. September 30, 2012.

  3. Internal Revenue Service. Publication 535, Business Expenses.

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  8. Norris, Louise. Self-employed health insurance deduction. February 23, 2020.