Every day I hear small business owners, entrepreneurs, and free-lancers ask, "are health insurance premiums tax deductible?" The rules about when health insurance premiums are tax deductible can be confusing. Whether you are an individual, self-employed worker, or small business owner, here is a simple breakdown about when health insurance premiums are tax deductible.
As an individual, your unreimbursed health insurance premiums are generally deductible if you paid for your health insurance premiums with your own after-tax money.
For example, if you bought an individual or family health insurance policy on your state’s health insurance exchange, the money you paid toward your monthly health insurance premiums (after health insurance tax credits are applied) can be taken as a tax deduction. You’ll list this deduction as a medical expense on Schedule A of Form 1040.
However, if you pay for a portion of your workplace premium pre-tax through a payroll deduction, this amount would not be deductible.
If you're covered under Medicare, Medicare Part B, Part D prescription coverage, and Medigap supplemental premiums are deductible. Medicare Part A is usually not deductible.
Lastly, there is a limit to how much you can deduct. You may deduct only the amount by which your total medical expenses exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older.
For more information on health insurance tax deductions for individuals, see IRS Publication 502.
If you are self-employed, you'll likely be able to deduct your health insurance premiums, including age-based premiums for long-term care coverage. The line 29 deduction on the 1040 return is still available to those whose business income shows a profit, who are not eligible for employer-provided insurance (either from a side job or a spouse’s job), and who meet other criteria. If you received a health insurance tax credit, you would list the actual out-of-pocket cost to you, not including any tax credit received.
If you are a small business owner, health benefits you offer to employees may be tax-deductible as a business expense.
Group health insurance premiums you pay are tax deductible as a business expense.
Reimbursements made through formal reimbursement plans are often tax deductible as a business expense. See: The IRS Rules for Premium Reimbursement Plans
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