Health Care What Does My New Health Insurance Mean for My Taxes? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Jim Wang Published May 17, 2024 - [Updated Jul 1, 2024] 4 min read Reviewed by Jotika Teli, CPA Lena Hanna, CPA In an effort to keep health insurance premiums more affordable, switching policies has become practically an annual event. This is true with many employer-sponsored plans, but you might even make a switch to an individual plan. Chances are, you began 2024 with a new health insurance plan, and you may even do the same for 2025. What effect will new health insurance mean for your taxes? It all depends on what type of plan you’ve selected, as well as whether or not you have an employer-sponsored plan or an individual plan. A New Employer-Sponsored Health Insurance Plan One of the basic advantages of having an employer-sponsored health insurance plan is that the premiums are typically paid with pre-tax dollars. This results in a reduction to your taxable income. For example, if you earned $50,000 in wages from your employer and contributed $5,000 toward your health insurance premium, your income for federal tax purposes will be reduced to $45,000. If you’re in the 12% tax bracket for 2024, this will result in a $600 reduction in your federal income tax. That doesn’t come close to offsetting the cost of your contribution, but it gives you some tax relief. With most plans, the employer pays part of the premium. That portion of the premium has no tax consequences for the employee but is a deduction for the employer. A New Individual Health Insurance Plan If your employer doesn’t provide a health insurance plan, you can get coverage either on your state health insurance exchange or on healthcare.gov by the December 15 open enrollment deadline. If you have to go this route, there are two ways you may get a tax break. Health insurance premium tax credit: If you purchase health insurance in your state marketplaces or healthcare.gov, you may be entitled to the premium tax credit (PTC) to help you pay for health insurance. There are a series of eligibility criteria, but the main one is based on your income. To be eligible, your household income must be at least 100% but not more than 400% of the federal poverty level. Claim the premiums as an itemized deduction: To the extent your premiums exceed 7.5% of your adjusted gross income, you can claim them as an itemized deduction. For example, if your adjusted gross income for 2024 is $100,000, and you paid $20,000 in health insurance premiums, you’ll be able to deduct $12,500 of that amount. That’s calculated by $20,000 – ($100,000 X 7.5%). Be aware that you can typically deduct the higher of your itemized deductions or your standard deduction. For 2024, the standard deduction was increased to $14600 for single filers and $29,200 for those married filing jointly. When preparing your tax return, TurboTax will let you know what the most tax-advantageous option would be for your specific situation. If you are self-employed you can deduct your health insurance premiums paid on your Schedule C (as part of your business income and expenses), and you don’t have to itemize your deductions or be subject to the 7.5% requirement. Impact of a Health Savings Account (HSA) You may be considering a Health Savings Account (HSA) as a direct result of the increase in health insurance deductibles in recent years. HSAs can partially offset the health insurance premium cost. A typical deductible is several thousand dollars, whether on an employer-sponsored plan or an individual health insurance plan. An HSA can help you build up cash reserves to cover a high deductible and you get a tax break on your contributions. For 2024, you can contribute up to $4,150 for yourself or $8,300 if you have coverage for your family. At age 55 and older, individuals can contribute an additional $1,000. There are also specific limits on both the deductibles and out-of-pocket maximums on your basic health insurance. HSAs are an excellent way to balance higher deductibles and out-of-pocket costs with a reduced-cost basic health insurance premium. Generally, unspent funds can remain in an HSA from one year to another. HSA funds can pay for medical expenses such as deductibles, copayments, and other healthcare costs. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed. Get started Previous Post FSA or HSA: Which Offers the Best Tax Advantages? Next Post What is the Inheritance Tax? Written by Jim Wang More from Jim Wang One response to “What Does My New Health Insurance Mean for My Taxes?” I’m retired yet i buy my insurance through my prior employer because the union allows retirees to do so His do I classify my Insurance since I’m retired? Reply Leave a ReplyCancel reply Browse Related Articles Health Care Can You Claim a Tax Deduction for Health Insurance? Uncategorized I have health insurance through my employer. 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I’m retired yet i buy my insurance through my prior employer because the union allows retirees to do so His do I classify my Insurance since I’m retired? Reply