When Can You Claim a Tax Deduction for Health Insurance?

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Each year, June 28 marks National Insurance Awareness Day, serving as a reminder that it’s a good time to review your insurance coverage and ensure that it still fits your needs.

This is particularly true for health insurance and making sure you have the right amount of coverage at an affordable cost.

Health insurance can be expensive, so being able to claim a tax deduction for some of your insurance costs can help you save come tax time.

Since there are specific rules and qualifications you must follow, here’s an overview of when you can and cannot claim a tax deduction on your health insurance.

When health insurance is not tax-deductible

If you didn’t pay for health insurance, you can’t take a tax deduction for it. If your employer pays your health insurance premiums, you can’t deduct those costs. However, if an employer only pays for part of your premiums, you still may be able to claim a tax deduction for the portion you paid.

If you received a subsidy or premium tax credit to purchase an insurance plan in the Health Insurance Marketplace through the Affordable Care Act, any advanced-payment subsidy that lowered the cost of your health insurance premiums cannot be claimed as a tax deduction. However, the money you paid out of your own pocket for your premiums might be tax deductible.

You can’t take a deduction for health insurance you paid for with pre-tax money. If you have insurance through your employer, the premiums you pay are usually taken out of your paycheck before your income taxes are calculated. Since these premiums are paid with pre-tax dollars, they’re already income-tax-free, meaning you can’t claim them as a tax deduction.

Also note, you can not deduct health insurance unless you itemize your tax deductions or you are self-employed.  You don’t need to know if you qualify for itemized tax deductions, TurboTax will figure it out for you.

When health insurance is tax-deductible

If you’re self-employed, your health insurance premiums may be tax deductible. If you’re self-employed and not eligible for an employer-sponsored health plan through a spouse’s job, you may be eligible to write-off your health insurance premiums on your taxes. However, you can’t write off more in health insurance premiums than you earned.

Health insurance premiums paid with your own after-tax dollars are tax deductible. For example, if you purchased health insurance on your own through a health insurance exchange or directly from an insurance company, the money you paid toward your monthly premiums can be taken as a tax deduction.

Some Medicare plans are tax deductible. This includes Medicare Part B and Part D prescription coverage.

There are limits to the amount of your health insurance you can deduct. If you are able to write-off your health insurance, there are limits to how much of your premiums you can write off.

If you’re able to claim your health insurance as a medical expense deduction, you can only deduct medical expenses that exceed 10% of your adjusted gross income (7.5% if you’re 65 or older). If you’re self-employed and claimed the self-employed health insurance deduction, you don’t have to exceed the 10% threshold because you’re writing the premiums off as an adjustment to your self-employment income rather than as a tax deduction deduction.

As with all tax laws, TurboTax is up-to-date with the latest tax law changes.  If you have more questions about the Affordable Care Act and how it impacts you and your taxes, you can get answers from TurboTax Health.