Considering that a day in the hospital can cost upwards of $2,600, having health insurance is crucial for peace of mind. But insurance is not free. Fortunately, as long as they reach a particular threshold and you itemise your deductions, health insurance premiums and other medical costs may be tax deductible.
Can you and does it make financial sense to deduct the cost of your health insurance? What you should know is as follows.
Health Insurance Premiums That Qualify For A Tax Credit
Any out-of-pocket health insurance premiums you pay for plans that include medical care are tax deductible. (Medical insurance coverage, with certain exceptions, cover treatment such as hospitalisation, surgery, and X-rays; prescription medications, insulin, dental care, lost or broken contact lenses, and long-term care.) You can write off these costs for you, your spouse, and your dependents when filing your taxes.
Medicare Part B and D premiums as well as COBRA insurance premiums are both deductible expenses. The premiums paid for Medicare A are also tax deductible if you are not a former government employee who paid Medicare tax or enrolled in Medicare under Social Security.
Any out-of-pocket rates you pay for health insurance are tax deductible whether you purchase it through the federal insurance marketplace or your state marketplace.
If you work for yourself, you can deduct the premiums for eligible long-term care insurance and health insurance from your income. Your adjusted gross income (AGI) decreases as a result, decreasing your tax obligation. Additionally, you might be eligible to claim medical and dental costs on Schedule A of IRS Form 1040 as itemised deductions.
However, regardless of whether you're employed or self-employed, you can only deduct medical costs that exceed 7.5% of your adjusted gross income.
Health Insurance Premiums Not Deductible From Income
Not every health insurance premium is deductible from taxes. For instance, you cannot deduct any premiums that are paid for your pretax from your paycheck or the percentage of your premiums that your employer covers.
Your Medicare A premiums are not tax deductible if you are a Social Security beneficiary and are paid for by Social Security.
Are some of your health insurance premiums through a state or federal insurance marketplace covered by a tax subsidy? If this is the case, you may only deduct the percentage of your premiums that you pay out of pocket.
What Medical Expenses Can Be Deducted From Income?
Medical expenses other than health insurance premiums may qualify for tax deductions. Qualified medical expenses for you, your spouse, and any dependents may be written off if you itemise your deductions. Included in deductible medical costs are expenditures for:
Doctors, dentists, chiropractors, psychiatrists, and psychologists are examples of medical professionals.
Intensive hospital treatment
Care in a residential nursing facility, if the resident is there primarily for medical treatment. You may only deduct the expenditures of medical treatment, not those for food and accommodation, if that is not the primary reason the individual is in a nursing home.
Acupuncture procedures
Addiction to alcohol or drugs treated inpatiently
Taking prescription medications to help nicotine withdrawal and taking part in a stop-smoking programme
Programmes to lose weight for problems like obesity that have been identified by a doctor
Insulin and prescription medications
Transportation and admission to a medical conference pertaining to a chronic condition you, your spouse, or a dependent have
Wheelchairs, crutches, reading or prescription glasses, contact lenses, hearing aids, and false teeth
A companion animal serving as a service to someone with physical difficulties
Taxi, bus, or rail fares to get to the doctor that counts as medical expenses, ambulance fees, the out-of-pocket cost of driving your own car, and tolls or parking fines are other examples.
Dental procedures and preventive care
Any reimbursement you get, whether paid to you or to the medical facility or provider, must be subtracted from the total amount you deduct for medical expenditures.
Itemized vs. Standard Deduction: Which Should You Choose?
When determining whether to itemise, there are two key questions to consider:
Does your AGI exceed 7.5% of your medical expenses? Only the percentage of your medical expenses that exceed this sum is eligible for a tax deduction. If your AGI is $100,000 and your medical expenses were $10,000, for instance, you could only deduct $2,500 ($10,000 - $7,500) from that total.
Do you have more than the standard deduction in itemised expenses? You can lower your tax obligation by subtracting the standard deduction from your taxable income. The usual deductions for tax year 2021 are:
filing jointly costs $25,100 for married couples.
$12,550 for taxpayers who are unmarried or who are married but filing separately.
$18,800 for household head
Blind people and people 65 years of age and older are eligible for additional deductions. Your standard deduction can be less if someone else claims you as a dependent.
It might be advantageous to itemise if your total deductions exceed the standard deduction. There are more considerations besides just medical expense deductions. Additionally, if any of the following apply to you:
paid your home's property taxes and mortgage interest.
made big donations to charity
had significant theft or casualty losses that weren't covered by insurance