Is Health Insurance Tax Deductible?

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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.

When Health Insurance Isn’t Tax Deductible

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 your employer paid.

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. While the advanced payment subsidy money 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.

You can’t take a deduction for health insurance you paid for 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, your ability to deduct them will be limited, as described below).

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, you may be able to write-off your health insurance premiums. You can’t write off more in health insurance premiums than you earned, though.

Rather than listing your health insurance premiums with your other tax deductions on Schedule A, when you’re self-employed they’re considered an adjustment to your income and listed on Schedule 1 (Line 29) of Form 1040. This has the effect of decreasing your overall income. 

In some ways, this adjustment-to-income approach is better than a traditional deduction.

  • 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. 
  • Many 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).

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 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 count as medical expenses that can be deducted if you itemize deductions.

Medicare Part B, Part D prescription coverage, and Medigap supplemental premiums count 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 A premiums are a bit trickier. If you’re covered under social security, you get Medicare Part A automatically, 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 while you were working, and
  • you’re not covered under Social Security, and
  • you voluntarily enrolled in Medicare Part A, and
  • you pay monthly Part A premiums.

The Amount of Your Health Insurance Tax 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 10% of your adjusted gross income.

Add up your 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 10% of your adjusted gross income, you can deduct the part that exceeds 10% 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 10 percent 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 your income. 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.

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