Can I Deduct Health Insurance Premiums? It Depends
If you pay your health insurance premiums with your after-tax dollars, then you can deduct these amounts when doing up your personal income tax return for the year. You cannot deduct them if you paid the premiums with pre-tax dollars (for instance, through your place of work) or if an employer paid them for you.
Here’s What We’ll Cover:
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
Are Medical Insurance Premiums Deductible?
An individual can deduct health insurance premiums under the following conditions:
- The premiums were not paid for by an employer.
- The premiums were not paid for with pre-tax dollars (meaning the amounts paid were not taken from one’s gross income, before tax deductions).
- A subsidy is not claimed.
- The premiums + medical expenses exceed 10% of the taxpayers adjusted gross income. Adjusted gross income is one’s total taxable income, after deductions.
Taxpayers must choose between itemizing their deductions (which includes both insurance premiums and medical expenses) or simply choosing the standard deduction.
Itemized deductions are eligible expenses that decrease one’s adjusted gross income. If these expenses are high enough, then it may be to the taxpayer’s benefit to take the itemized deductions over the standard deduction. Receipts must be kept if one chooses this option.
The standard deduction is a fixed dollar amount, it also reduces one’s adjusted gross income. No proof of expenses are expected or required. As such, the taxpayer does not need to hold on to receipts.
A taxpayer cannot claim both itemized and standard deductions. As such, it is recommended every taxpayer calculate the total amount of their itemized deductions when doing up their return, and compare it with the standard deduction to see which results in the bigger tax break.
Can Self-Employed Deduct Health Insurance Premiums?
Yes, a self-employed individual can qualify for a deduction regardless of whether his business purchased the insurance plan, or he did personally. He can also include the premiums paid for his spouse and dependents. There is no 10% limit (as noted above) for self-employed individuals claiming the deduction.
However, the deduction cannot exceed what the self-employed individual earned.
If you are self-employed, you cannot claim if:
You’re Eligible for an Employer’s Subsidized Group Health Plan
Let’s say you’re self-employed and your spouse is not. And she has access to family coverage under a group plan. Then your premiums are not deductible.
If Your Business Takes a Loss
This is because there is nothing to deduct the expenses against. In other words, the taxpayer must have self-employment income.
What Medical Expenses Can I Deduct?
The following medical expenses may be tax deductible, if the costs are associated with:
- Artificial Limbs
- Hearing aid
- Home renovations (because of a medical condition)
- Hospital inpatient care
- Inpatient alcohol and drug treatment center fees
- Laboratory fees (for instance, blood tests)
- Medical equipment (wheelchair, crutches, etc.)
- Nursing home, or long term care
- Prescription medications
- Preventative care
- Travel costs to see a specialist (including airfare, travel, lodging, mileage or taxis)
- Vision care (including checkups, contacts and glasses)
- Weight loss programs (related to a disease, as diagnosed by a physician).
If you were already reimbursed for a medical expense (for instance, by your insurance company), you cannot claim the amount for a deduction.
Examples of expenses that are not deductible:
- Burial or funeral fees
- Cosmetic surgery
- Diet food
- Health club memberships
- Maternity clothes
- Non-prescription nicotine products
- Teeth whitening
- Vitamins or nutritional supplements
What Is the Standard Medical Deduction?
There is no standard “medical” deduction. It is simply called a standard deduction and does not include medical expenses you may incur. For the 2019 tax year, the deductions are:
- $12,200 for single taxpayers, or married couples filing income taxes separately.
- $18,830 for head of households (single individual who pays more than half of the cost of keeping up a home)
- $24,000 for married taxpayers, or qualifying widowers.