When you file your tax return, you can minimize your tax liability through common tax deductions like student loan interest, mortgage interest and charitable donations. But are medical premiums tax deductible, too?
The answer will depend on several factors, including whether you have an employer-sponsored health insurance plan or are self-employed and buy your own health insurance. With an employer-sponsored health insurance plan, your employer will usually cover some or most of the premium, while you’ll pay the rest. If you’re self-employed, you’re responsible for paying the full cost of your health insurance premium. How you buy your health insurance impacts whether you can deduct your premiums from your taxes.
Health Insurance Premiums Tax Deductible for Employees?
Employees with employer-sponsored health insurance plans generally aren’t eligible to deduct their medical premiums. That’s because of how payments for these insurance plans are structured.
Typically, your employer will pay for some of your monthly premiums. The portion of the premium that you pay is often deducted from your payroll expenses, meaning you’re paying the premium with pre-tax money. If your premiums are paid with pre-tax money, you can’t deduct them from your taxes.
There are a few exceptions, though. If your domestic partner is on your employer-sponsored insurance plan, their premium isn’t deducted from your payroll and is paid with after-tax income. In that case, your partner’s health insurance premiums could be tax-deductible.
When Can Self-Employed Individuals
Health Insurance Premiums?
When you buy your health insurance through your state’s healthcare marketplace, you may qualify for a subsidy to help keep your premiums more affordable. If you qualify for a subsidy, then you can only deduct the after-subsidy amount that you pay for your health insurance from your taxes.
In some cases, your spouse’s health insurance premiums. To qualify, your spouse can’t be eligible for an employer-subsidized plan. For example, if you’re self-employed and your spouse is unemployed, you might enroll yourself and your spouse in a health insurance policy that you buy on your state’s marketplace. As long as neither you nor your spouse qualify for an employer-subsidized plan, then both of your premiums could be tax-deductible.
How to Calculate the Deduction for Self-Employed Individuals
The IRS Self-Employed Health Insurance Deduction Form helps you figure out how much of your health insurance premiums you can deduct. To fill out the form, ensure you have the following ready:
- Complete Form 7206, which guides you through the process of calculating your deduction.
- Complete Part II of Schedule 1. Line 17 features the self-employed health insurance deduction.
- Transfer the total from Schedule 1 to Form 1040, which is your individual tax return form.
- Include copies of all of these forms when you submit your taxes.
Be sure to also retain proof of all the health insurance premium payments that you’re deducting; if you are ever audited, you will need to be prepared to provide this documentation.
If you have any questions, be sure to consult with a tax professional. Filing your taxes as a self-employed individual can be confusing. Plus, if you plan to claim additional medical and dental expense deductions, you will need to itemize your deductions. A tax professional can help ensure you file your taxes correctly, and they may also be able to identify other deductions to maximize your tax savings
