FAQs for Health Insurance Tax Deductions in United States from derafes.com
US Health Insurance Tax Deductions FAQ
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We all need health insurance as it is an essential part of our financial security and well-being. But such important thing can also be expensive, especially if you’re self-employed or paying for your own coverage. I know that it will be hard for you. That’s why you might be wondering if you can deduct your health insurance premiums from your taxable income and save money on your taxes. In this article I will answer many of common FAQs about US Health Insurance Tax Deductions
For this one question, you can be sure that you can deduct some or all of your health insurance premiums as medical expenses or as self-employment expenses.
What are health insurance premiums?
This definition is must to know, as Health insurance premiums are the amount you pay to your health insurance company or plan your coverage. They can be paid monthly, quarterly or annually. And you can pay them directly to the insurer or through your employer, who may subsidize part of it.
Are health insurance premiums tax deductible?
There are two ways to deduct your premiums: as a medical expense or as a self-employed expense.
As medical expenses
Firstly, you can deduct your premiums as medical expenses if you itemize your deductions on Schedule A of Form 1040. However, you can only deduct the amount that exceeds 7.5% of your adjusted gross income (AGI ) for 2022. In simple way to explain this, here is an example, if your AGI is $50,000 and you paid $5,000 in health insurance premiums, you can deduct $1,250 ($5,000 – 7.5% x $50,000) .
In other way, you can also deduct other medical expenses not covered by your insurance, such as co-payments, deductibles, coinsurance, prescriptions, dental, vision, etc. You have to know that the same 7.5% threshold applies to the total amount of your medical expenses.
If you want to claim this deduction, you must have proof of your health insurance premiums and other medical expenses, such as receipts, bills, statements, etc. You must also have Form 1095-A if you purchased a plan through the Health Insurance Marketplace and received premium tax credits.
As a self-employed expense
I think you will find this interesting, as you are self-employed and pay for your own health insurance coverage, you can deduct 100% of your health insurance premiums as an income adjustment on Schedule 1 of Form 1040. This deduction reduces your AGI and does not require you to itemize your deductions.
You must meet the following criteria in order to benefit from this deduction:
- if you made a net profit from self-employment reported on Schedule C, C-EZ or F.
- if you were not eligible to participate in an employer-sponsored health insurance plan at any time during the year (either through your own employment or your spouse’s employment).
- You have taken out health insurance that covers you, your spouse and your dependents.
You can deduct premiums for any type of health insurance plan that meets the minimum essential coverage requirements under the Affordable Care Act (ACA), such as:
– A plan purchased through the health insurance market
– A plan purchased directly from an insurer or broker
– A plan offered by a professional association or trade group
– A plan offered by a government program (such as Medicare Part B or Part D)
– A plan offered by a former employer (such as COBRA or retiree health benefits)
But unfortunately, you cannot deduct premiums for:
– A plan that only covers dental or vision care
– A plan that only covers specific diseases or conditions
– A plan that pays a fixed amount per day or event
– A scheme subsidized by the tax credit on premiums
So, if you want to claim this deduction too, you must have proof of your health insurance premiums and self-employment earnings, such as receipts, bills, statements, tax forms, etc. You must also have Form 1095-A if you purchased a plan through the Health Insurance Marketplace.
Can I deduct both my medical expenses and my self-employment expenses?
No. I am sorry to tell you that you cannot combine the deductions and claim both deductions for the same health insurance premiums. You have to choose one or the other.
However, if you have other medical expenses that are not related to your insurance premiums, you can still deduct them as medical expenses on Schedule A, even if you are also claiming the self-employed health insurance deduction.
If you wonder about if your employer can pay for a portion of your health insurance premiums?
As I found in my search, if your employer pays for a portion of your health insurance premiums, you only can deduct the portion that you pay as a medical expense or as a self-employed expense. But!! you cannot deduct the portion that your employer pays, as it is considered a fringe benefit.
Can anyone deduct health insurance premiums for my spouse and dependents?
Yes, you can deduct premiums for both of your spouse and dependents as medical expenses or as a self-employed expense, but only as long as the criteria for the deduction are met.
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Are there any income limits or phaseouts for the health insurance premium deduction?
No, there are no income limits or phaseouts for the self-employed health insurance deduction. However, you have to know that the medical expense deduction is subject to a 7.5% threshold of your AGI for 2022.
Do I need to itemize my deductions to claim the health insurance premium deduction?
No, you do not need to itemize your deductions. But, for the medical expense deduction, you need to itemize your deductions on Schedule A of Form 1040 and meet the 7.5% threshold of your AGI for 2022.
Conclusion
In conclusion, health insurance premiums can be tax deductible as medical expenses or as a self-employed expense, depending on your situation.
