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  • Writer's pictureAhsan Malyk

Are Health Insurance Premiums Tax-Deductible in 2023?

Health insurance is one of the most crucial coverage categories in your insurance portfolio. However, the premiums can be expensive regardless of whether you obtain coverage via your workplace, the Affordable Care Act (ACA) marketplace, or a private health insurance company.


Your health insurance premiums and other related medical expenses may be deductible from your taxable income, which might reduce the amount of tax you owe the IRS come April.


Is medical expenses tax deductible?


Tax deductions for medical expenses may be available, however, they depend on your yearly medical expenses and if you are self-employed.


According to Claire Hunsaker, founder of AskFlossie, a financial network for women, the laws are different for self-employed people compared to those who work for someone else. You can deduct the cost of your health insurance premiums from your taxable income if you work for yourself and pay all of them.


According to Hunsaker, self-employed health insurance premiums are deductible as an "above the line" deduction on Form 1040. You can write off the cost even if you don't itemize deductions on Schedule A.


If you are a W-2 employee, the regulations are substantially more onerous. Only if you claim an itemized deduction on your tax return can you write off the out-of-pocket costs associated with your employer-sponsored health insurance premiums. According to Hunsaker, "the premiums can only be deductible to the extent that the premiums and other medical costs exceed 7.5% of your Adjusted Gross Income (AGI)".


Here is a breakdown of the numerous health insurance tax deductions.


Health insurance provided by the employer


Most people's share of employer-sponsored health insurance premiums is insufficient to qualify for a tax deduction from their taxable income. Your employer often foots the bill for group health insurance premiums, and the company contributes significantly to the overall expense. The remainder is deducted tax-free from your paycheck.


"Your taxable income has already been reduced if you are using pre-tax deductions for employer-sponsored health insurance premiums. Therefore, adding them as a medical deduction on Schedule A of Form 1040 would not be permitted to "double dip," according to Kristie Adams, CPA, regional director of tax and business services for Buckingham Advisors, an Ohio-based financial advisory firm.


ACA market plans


Tax deductions apply to ACA marketplace plans acquired through a state exchange or the federal one at Healthcare.gov. Self-employed people who are unable to obtain health insurance through their company or a spouse may find this to their advantage.


But in terms of self-employed workers, this isn't a deduction. It affects how much of your income is taxable.


You pay the premiums for your medical insurance through the ACA marketplace with pre-tax money. As a result, anybody with ACA coverage is eligible to use Form 1040 to deduct the entire amount of their yearly health insurance premium from their taxable income.


But there are some exceptions, like:


  • You cannot deduct your ACA health insurance premiums from your taxable income if you obtain health coverage through your spouse's employer-sponsored group health insurance plan and opt out of comprehensive coverage.

  • The amount of money you can write off as a tax deduction will depend on whether you are eligible for the ACA premium tax credits offered in the market. Only the 30% of your health insurance premium that you pay in taxes may be written off if you obtain a subsidy that covers 70% of it.


What Medical Expenses Can I Deduct From My Taxes?


The fact that some expenses can be written off from your federal income taxes is not well known. Other deductible medical expenses, besides your health insurance premiums, could consist of the following:


  • Rates for long-term care insurance

  • Cost of dental insurance

  • Cost of vision insurance

  • Prevention in medicine

  • Therapies for certain disorders

  • Tools required for a medical condition

  • Psychological services

  • Medical appointment travel and accommodation costs


It's crucial to keep in mind that if you decide to itemise your deductions and the entire cost of your qualifying medical costs exceeds 7.5% of your AGI, you may be able to write them off. A health plan or employer cannot deduct the money paid for.


According to Hunsaker, those who have impairments, chronic illnesses, or big medical events may find this tax benefit to be quite useful. For those who see a doctor only a few times annually for routine and preventative care, the deduction is challenging to claim.


This is why: According to the 2020 U.S. Census, the median household AGI is $67,521; $5,064 or 7.5% of that amount.


As a result, Hunsaker explains, "you may only deduct expenses up to a total of $5,064 therefore it makes sense for you to itemise deductions if you fulfil the requirements.


Medical costs not eligible for a tax deduction


To be eligible for the deduction, the costs must be for supplies or services that are medically essential. This implies that expenses like:


  • nonprescription medications

  • Cosmetic procedures

  • Without a prescription, nicotine gum and patches

  • initiatives to enhance overall health


Can you deduct additional health insurance from your taxes?


Premiums for additional health insurance, such as critical sickness insurance and hospital indemnity insurance, are typically tax deductible but only as qualified medical expenses.


If the sum of your medical expenses and supplemental health insurance premiums exceeds 7.5% of your AGI and you claim the itemized deduction, you may be able to deduct the amount.


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