Elizabeth Rivelli has nearly five years of experience covering insurance for finance publications. She has expertise in various insurance lines, including car insurance, health insurance, travel insurance, life insurance and others. In her writing, s.
Elizabeth Rivelli Insurance WriterElizabeth Rivelli has nearly five years of experience covering insurance for finance publications. She has expertise in various insurance lines, including car insurance, health insurance, travel insurance, life insurance and others. In her writing, s.
Written By Elizabeth Rivelli Insurance WriterElizabeth Rivelli has nearly five years of experience covering insurance for finance publications. She has expertise in various insurance lines, including car insurance, health insurance, travel insurance, life insurance and others. In her writing, s.
Elizabeth Rivelli Insurance WriterElizabeth Rivelli has nearly five years of experience covering insurance for finance publications. She has expertise in various insurance lines, including car insurance, health insurance, travel insurance, life insurance and others. In her writing, s.
Insurance Writer Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
| Deputy Editor, Insurance
Updated: Feb 15, 2024, 5:23am
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Health insurance is one of the most important coverage types in your insurance portfolio. But whether you get coverage through your employer, the Affordable Care Act (ACA) marketplace or a private health insurance company, the premiums can be costly.
You might be able to deduct your health insurance premiums and other health care costs from your taxable income, which can lower the amount of money you owe the IRS come April.
Health insurance costs may be tax-deductible, but it depends on how much you spent on medical care for the year and whether you’re self employed.
The rules are different if you’re self-employed compared to an employee, says Claire Hunsaker, founder at AskFlossie, a financial community for women. If you’re self-employed and pay all your health insurance premiums, you can deduct the cost from your taxable income.
“Self-employed health insurance premiums are deductible as an ‘above the line’ deduction on Form 1040, which means you can deduct the premium even if you don’t itemize deductions on Schedule A,” says Hunsaker.
The rules are much stricter if you’re a W-2 employee. You can only deduct the out-of-pocket portion of your employer-sponsored health insurance premium if you take the itemized deduction on your tax return. And even then, “the premiums can only be deducted to the extent that they and other medical costs exceed 7.5% of your Adjusted Gross Income (AGI),” says Hunsaker.
Here’s how tax deductions work for various types of health insurance.
For most people, their portion of employer-sponsored health insurance premiums aren’t enough to get deducted from taxable income. Most group health insurance premiums are subsidized by your employer and the business pays a large portion of the cost. The rest comes out of your paycheck, tax-free.
“If you are deducting employer-sponsored health insurance premiums on a pre-tax basis, it is already being deducted from your taxable income. Therefore, you wouldn’t be allowed to ‘double dip’ by adding them as a medical deduction on Schedule A of Form 1040,” says Kristie Adams, CPA and regional director of tax and business services for Buckingham Advisors, an Ohio-based financial advisory firm.
ACA marketplace plans, purchased through a state or the federal exchange at Healthcare.gov, are tax deductible. This can benefit self-employed individuals who can’t get employer-sponsored health insurance coverage or insurance through their spouse.
For self-employed people, however, this isn’t technically a deduction. It’s an adjustment to your taxable income.
When you have medical insurance through the ACA marketplace, you use pre-tax dollars to pay the premiums. As a result, anyone who has ACA coverage can deduct the full cost of their annual health insurance premium on their taxable income, using Form 1040.
There are exceptions:
COBRA insurance premiums are eligible for a tax deduction as a medical expense because you pay the premiums out-of-pocket without help from an employer. But you can only deduct the cost if the COBRA premiums and your other medical expenses exceed 7.5% of your AGI and you take the itemized deduction.
Though you’re likely responsible for paying all of the COBRA premiums, you can’t automatically deduct the full amount from your taxable income, like you can with ACA marketplace insurance premiums.
You can usually deduct the premiums for short-term health insurance as a medical expense. Short-term health insurance premiums are paid out-of-pocket using pre-tax dollars, so if you take the itemized deduction and your total annual medical expenses are greater than 7.5% of your AGI, you can claim the deduction.
