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With the high cost of medical care today, few can afford to pay their medical bills straight out of pocket. But with high premiums, you may be wondering, are health insurance premiums tax deductible?
Whether you have private insurance, a preferred provider organization (PPO) or health maintenance orgainzation (HMO), you’re 65 or older (or disabled) and pay into the Medicare system, you pay premiums for your healthcare coverage. It seems like premiums are always going up, but there are things you can do to help alleviate the financial pressure. You can reduce the cost of your health insurance premiums by deducting them from your taxes.
- What are Health Insurance Premiums?
- Can You Deduct Health Insurance Premiums?
- What Type of Medical Expenses are Tax Deductible?
- What About HSA Withdrawals?
- Is Long-Term Care Insurance Tax Deductible?
- Best Health Insurance
- Make Sure to Deduct Your Health Insurance Premiums
- Frequently Asked Questions
What are Health Insurance Premiums?
It may sound like an dumb question, but if you’re signing up for health insurance for the first time, it’s a valid one.
Health insurance premiums are the payments you make every month for healthcare coverage. Whether you’ve got an HMO or a PPO, monthly premiums are required. Just like you have to pay your mortgage or car payment every month, you have to pay your premiums, too. Types of insurance that require premiums include:
- Health maintenance organizations (HMOs)
- Preferred provider organizations (PPOs)
- Exclusive provider organizations (EPOs)
- Point-of-service (POS)
- High-deductible health plans (HDHPs)
Medicare, while not private insurance, also requires premiums. Medicaid does not.
Unlike with your mortgage or car payments, however, there are other costs incurred when using your health insurance. First, you must meet your deductible. Then, there are copayments. Health insurance is there to cover the major costs, but it doesn’t pay for everything. Even after you pay your monthly premium, you still have more to contribute.
When it comes to the cost of your health insurance premiums, there are certain tax advantages you can take to lower the costs. Can you deduct health insurance premiums on your taxes? The short answer is yes.
Can You Deduct Health Insurance Premiums?
The good news is yes, you can deduct your health insurance premiums from your taxes. What does that mean for your premiums? It means the cost goes down. Tax deductions translate into real dollars.
If Your Coverage is Through Your Employer
To begin with, if your insurance is an employer-based policy, meaning you get your health insurance through your job, you cannot deduct the cost of your premiums from your taxes because your employer already has. Employer-sponsored health insurance premiums get deducted on a pretax basis. Health savings accounts through your employer are similarly not tax deductible.
If You’re Self-Employed
If you’re self-employed, however, your health insurance premiums are tax deductible. Self-employment means paying your healthcare premiums out of your own pocket with after-tax dollars. Types of insurance that are deductible include:
- COBRA: COBRA insurance continues your employer-based health insurance even if you don’t work there anymore. The IRS allows tax deductions for COBRA because even though you’re still on the same policy, now you’re the one paying the premiums.
- Marketplace: Marketplace insurance premiums purchased through the Affordable Care Act are tax deductible because you pay for them. Remember, if at some time you opt out of the Marketplace and onto an employer-sponsored plan, you’ll no longer be able to take the deduction.
- Medicare: Premiums for Medicare are tax deductible. This includes parts B, C, D and Medigap. If you’re enrolled in a Medicare Advantage plan, that’s tax deductible as well.
Choosing from a standard or itemized deductible
When choosing which type of deduction to take, you can choose from standard or itemized. If you go the standardized route, you deduct a preset amount:
- Single — $12,400
- Head of household — $18,650
- Married filing jointly — $24,800
- Married filing separately — $12,400
What is a standard deductible best?
The advantage of the standard deduction is that it’s much easier to tally come tax time. Just take your Adjusted Gross Income (AGI), and deduct your premiums from that. AGI is your gross income (wages, business income, capital gains, retirement benefit and dividends). Pretty much any type of income counts, including student-loan interest, alimony payments and child support.
Not only are you allowed to deduct your health insurance premiums, but additional medical expenses as well. Remember, healthcare premiums are just another form of medical expense.
When is an itemized deduction best?
If you have a large amount of medical expenses, itemizing your deductions is the way to go. If you or a member of your family has cancer or any other major illness and your medical expenses are quite substantial, be sure to itemize. It can make a huge difference in your taxes. If you just have the regular few medical expenses, go the standard deduction route.
What Type of Medical Expenses are Tax Deductible?
The IRS allows you to deduct all medical expenses paid out of your own pocket, if ordered by a doctor or a healthcare professional. Types of tax-deductible medical expenses include:
- Long-term care
- Dental insurance
- Medical appointments
- Prescription drugs
- Medical tests
- Hearing aids
- Prescription glasses
- Contact lenses
- Birth control
You may deduct all travel expenses incurred while getting treated as well. This not only includes long trips and extended stays like airline tickets and hotel stays but even shorter trips where gas and tolls are your only expenses.
When adding up your medical expenses, remember that you can only deduct that amount which exceeds 7.5% of your AGI. Sounds complicated but really it’s not. Let’s say, for example, your adjusted gross income is $100,000 per year and your total medical expenses (including premiums) is only $5,000. This means you don’t meet the 7.5% threshold and itemizing your deduction doesn’t pay off.
What About HSA Withdrawals?
If you have a Health Savings Account (HSA) and you either lost your job or retired, don’t worry — your savings can be deducted if you use them to pay your healthcare premiums, like with COBRA. Even after your COBRA eligibility runs out, as long as you use your health savings account for medical expenses, you can deduct it from your taxes.
Important: If you withdraw funds from your HSA for anything besides medical expenses, you’ll have to count it as taxable income and pay a 20% penalty on top. The penalty is withdrawn if you’re 65 or older or disabled.
Is Long-Term Care Insurance Tax Deductible?
Yes, long-term care insurance is tax-deductible. In fact, the IRS increased the amount you can deduct for 2020 to $10,860 if you’re 70 or older. If you meet the 7.5% AGI threshold, it’s counted as a medical expense on your taxes.
Nursing-home expenses are deductible as well. If you or your spouse are in a nursing home and the primary reason is for medical care, then the whole thing is deductible. Only the cost of the medical care is deductible, however, not meals and lodging.
Best Health Insurance
If you’re self-employed, or otherwise need to pay your own healthcare premiums like through Medicare or the Marketplace, the question is where do you begin? There are so many private insurance companies, choosing 1 can be confusing? Don’t worry, Benzinga.com has put together a comprehensive list of health insurance companies for you.
Blue Cross Blue Shield consists of 35 separate companies that provide health insurance for roughly one-third of Americans. The company serves all 50 states, Washington D.C., Puerto Rico, and many international areas.
While you look into the BCBS affiliates near you, understand what health plans are available as well as the health insurance cost. It offers extensive coverage that gives just about every American the opportunity to purchase a BCBS-affiliated health plan. However, be sure to read up on the company because the premiums and deductibles may not suit you and your circumstances.
- Desire for a new doctor with plenty of options
- No cap on annual maximum limits
- Comprehensive coverage with exclusive discounts and partnerships
- Coverage in all 50 states and outside the country
- Covers both generic and brand-name drugs
- Wide network of doctors, hospitals and specialists
- Plans offered through regional companies, meaning you must look to your regional company for specific policies
- Main customer service helpline may be difficult to reach
Sidecar Health Access Plan is another approach to traditional health insurance. Instead of your health care providers billing your insurance, you pay upfront using the Sidecar Health payment card. This results in savings of up to 40% on healthcare costs for its customers.
Established in 2018, Sidecar Health Access Plan is based in El Segundo, California. Its plan options are easy-to-understand and allow you to shop upfront for affordable health care rather than receiving care and finding out what it costs later.
Learn more about Sidecar Health Access Plan and how it works.
Prefer to talk to an agent on the phone? Call 866-794-1192 to speak to a representative now.
- People who are younger than age 65
- People in relatively good health
- People who want to shop for affordable doctors, specialists or procedures
- People who want transparency in healthcare costs
- You can customize your plan
- It may reduce healthcare costs by as much as 40%
- It has a mobile app to access information on-the-go
- No provider network, so you can see any doctor with no referrals needed
- No enrollment period
- Plans are not compliant with the Affordable Care Act (ACA)
- Plans have an annual coverage limit
Kaiser Permanente is a not-for-profit health plan. Kaiser Permanente offers both health insurance and health care, which has resulted in excellent reviews from customers and rating organizations. Kaiser Permanente does have limited service areas, and you typically need to stay in-network for services unless you’re experiencing an emergency.
- People in Kaiser Permanente service areas
- People who don’t mind managed care
- People who like to manage their care online
- Many services available in one location
- Ability to make appointments online or using an app
- Good customer service
- Limited service area
- Need to stay in the Kaiser Permanente network for most services
UnitedHealthcare is an insurance company that is dedicated to making the health care system work better for everyone. Its plans can serve customers of all ages, starting in childhood and continuing all the way through the retirement years. The company partners with more than 1.3 million health care professionals and over 6,500 hospitals to give customers the freedom to access healthcare wherever they are. This insurance provider has a strong financial standing and good ratings, making it a reliable option for just about anybody.
- People who want flexibility in their health care coverage
- People who want supplemental insurance coverage
- People who qualify for both Medicare and Medicaid
- Offers a wide variety of plans
- Strong financial and customer service ratings
- ACA and non ACA plans available
- Not all plans ACA-compliant
- The website can make it difficult to get a quote
Cigna Health Insurance offers low-cost private health insurance and Medicare Advantage and Supplement Plans for families and individuals. Founded in 1982 and based in Bloomfield, Connecticut, the company offers a wide array of health insurance plans including three Bronze plans, four Silver and one Gold. All Cigna plans are EPO plans, meaning they are all in-network. Free telehealth visits come with every plan and are available to customers 24/7.
The four-metal tier coverage plans include:
- Expanded bronze
Individual and family Cigna private insurance plans are all available on the Marketplace and through the Cigna website, as well as with licensed agents in each state. Because they are sold through the Marketplace, they can only be purchased during your state’s open enrollment period. Special enrollment periods apply for special circumstances.
- Easy access to benefits
- Pharmacy programs
- Savings and spending accounts such as HSA and FSA
- Supplemental plans
- Home delivery for prescriptions
- Health management mobile apps
- Easy ID card replacement
- Potentially high deductibles
- Not available in all 50 states
Make Sure to Deduct Your Health Insurance Premiums
If you’re self-employed, get your insurance through Medicare or the Marketplace, don’t forget to deduct your premiums from your taxes. Forgetting to take tax deductions for your healthcare premiums is like flushing money right down the toilet.
The IRS allows you to deduct all medical expenses, including premiums, as long as they add up to at least 7.5% of your adjusted gross income. Itemize your expenses or take the standard deduction, whichever proves more profitable for you.
Frequently Asked Questions
Can health insurance premiums reduce taxable income?
Yes, health insurance premiums can reduce your taxable income. It all depends on whether you’re self-employed or you work for someone else. If you pay your own premiums, you can deduct them from your taxes. If your job pays for them, your employer gets the deduction.
Not only can you deduct premiums but medical expenses as well. Make sure your expenses total more than 7.5% of your adjusted gross income.
Can I deduct my health insurance premiums in 2019?
It’s never too late to go back and file your taxes. Actually, you only get 3 years to go back and file delinquent taxes, but for 2019 you still have plenty of time. If you didn’t file taxes, or even if you did and you forgot to deduct your medical expenses, you can still go back and amend your 2019 returns.
To find out more about tax deductions, check out this article from Benzinga.com titled What Are Self-Employment Tax Deductions?