Tax time is right around the corner. Time to corral all the receipts, break out the calculator and see how much of your hard-earned cash you actually get to keep. Your best bet is to itemize and claim every single legitimate deduction you’re entitled to. A growing chunk of your income increasingly goes to health care. Is health insurance tax deductible? Can you write off those health insurance premiums? The answer is…maybe. The following are general guidelines for when you can and cannot deduct health insurance. Keep in mind that your situation is unique and laws regarding taxes are fluid. You should always consult a tax professional.
Like many kinds of insurance, health insurance is an above-the-line tax deduction under certain circumstances. If you are self-employed and had a net profit for the year in question, your health insurance premiums will almost always be 100% tax deductible. That includes the premiums you pay for your spouse and dependents. One exception would be if you or your spouse or your dependents are covered by group insurance provided by another employer. Another exception, according to the tax code, would be if your income derives from a Schedule C business and you report a net loss on Form 1040 Line 12. In that case you may not deduct your health insurance costs. You should also be aware that you can’t deduct health insurance costs incurred during any months when you were eligible to participate in a group health insurance plan through your employer or your spouse’s employer.
If you are not self-employed, the IRS will let you count your health and dental insurance premiums toward the allowable percentage of your adjusted gross income you have to spend on health care before you can deduct any out-of-pocket health and medical expenses. Check the IRS website for the current allowed percentage.
Are you beginning to understand why most Americans use a tax pro to prepare their itemized returns?
So, yes, under certain conditions health insurance is tax deductible. But let’s be perfectly clear about what counts as health insurance. Policies that cover visits to your doctors’ offices count. So does a stay in the hospital, out-patient surgical procedures, vision and dental care and prescription drugs. The IRS also allows deductions for some types of long-term care insurance and certain types of medical co-op memberships. Over-the-counter drugs don’t count. Neither do premiums paid to an employer-provided group plan because in most cases those are paid for pre-tax. Neither do short-term disability policies that cover part of your income if you’re unable to work.