Are health insurance premiums tax deductible? • Benzinga
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Medicare is a must these days. Gone are the days of affordable hospital stays and home visits. With the high cost of medical care today, few can afford to pay their medical bills straight out of pocket.
Whether you have private insurance, a Preferred Provider Organization (PPO), or a Health Maintenance Organization (HMO), are 65 years of age or older (or disabled) and pay into Medicare, you pay premiums for your health care coverage. It seems like premiums are always going up, but there are things you can do to help ease the financial pressure. You can reduce the cost of your health insurance premiums by deducting them from your taxes.
What are health insurance premiums?
It might sound like a silly question, but if this is your first time purchasing health insurance, it’s a valid question.
Health insurance premiums are the payments you make each month for health care coverage. Whether you have an HMO or a PPO, monthly premiums are required. Just like you have to pay off your mortgage or your car every month, you also have to pay your premiums. Types of insurance that require premiums include:
Health maintenance organizations (HMOs)
Preferred service provider organizations (PPOs)
Exclusive provider organizations (EPOs)
Point of Service (POS)
High Deductible Health Plans (HDHP)
Medicare, while not private insurance, also requires premiums. Medicaid does not.
Unlike your mortgage or car payments, however, there are other costs incurred when using your health insurance. First of all, you must respect your deductible. Then there are the quotas. Medicare is there to cover the main costs, but it doesn’t pay for everything. Even after you’ve paid your monthly premium, you still have more to contribute.
When it comes to the cost of your health insurance premiums, there are some tax benefits you can take to keep costs down. Can You Deduct Medicare Premiums From 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 of your taxes. What does this mean for your premiums? This means that the cost goes down. Tax deductions are translated into real dollars.
For starters, if your insurance is an employer policy, which means you get your health insurance through your job, you cannot deduct the cost of your premiums from your taxes because your employer has already done so. . Employer sponsored health insurance premiums are deducted on a pre-tax basis. Likewise, your employer’s health savings accounts are not tax deductible.
If you are self-employed, however, your health insurance premiums are tax deductible. Self-employment means paying your health care premiums out of pocket with after-tax dollars. The types of insurance that are deductible include:
COBRA: COBRA insurance maintains your employer health insurance even if you no longer work there. The IRS allows tax deductions for COBRA because even though you are still on the same policy, you are now the one paying the premiums.
Market: Market insurance premiums purchased under the Affordable Care Act are tax deductible because you pay them. Remember that if at some point you opt out of the Marketplace and subscribe to an employer sponsored plan, you will no longer be able to benefit from the deduction.
Medicare: Medicare premiums are tax deductible. This includes parts B, C, D and Medigap. If you are enrolled in a Medicare Advantage plan, this is also tax deductible.
When choosing the type of deduction to take, you can choose between standard or detailed. If you follow the standardized route, you deduct a predefined amount:
Single – $ 12,400
Head of family – $ 18,650
Joint joint deposit – $ 24,800
Bride and groom deposit separately – $ 12,400
The advantage of the standard deduction is that it is much easier to deduct at tax time. Just take your Adjusted gross income (AGI) and deduct your premiums from it. AGI is your gross income (salary, business income, capital gains, retirement benefit, and dividends). Almost 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 that health care premiums are just another form of medical expenses.
If you have significant medical expenses, it is best to itemize your deductions. If you or a family member has cancer or any other serious illness and your medical expenses are quite large, be sure to itemize them. It can make a huge difference in your taxes. If you only have the few usual medical expenses, go for the standard deduction.
The IRS allows you to deduct all medical expenses paid out of your pocket, if they are ordered by a doctor or health care professional. Types of tax-deductible medical expenses include:
Long term care
You can also deduct any travel costs incurred during your treatment. This not only includes long trips and extended stays like airline tickets and hotel stays, but even shorter trips where gasoline and tolls are your only expense.
When you add up your medical expenses, remember that you can only deduct the amount that is more than 7.5% of your AGI. It sounds complicated, but it really isn’t. Say, for example, your adjusted gross income is $ 100,000 per year and your total medical expenses (including premiums) are only $ 5,000. This means that you do not reach the 7.5% threshold and that the detail of your deduction is not profitable.
What about employee insurance?
You cannot deduct your premiums from your taxes if you have received employer-sponsored health care. First, your employer has already taken the deduction. Second, your bonuses have been deducted from your salary. How can you pay taxes on income you never collected?
What if you were self-employed?
If you are self-employed, you go straight to first row. Being self-employed means paying your health insurance premiums straight out of your pocket. Who else is going to pay them?
If you are self-employed and want to deduct your medical expenses, make sure you meet the AGI threshold of 7.5% if you want to itemize. It is not difficult to reach 7.5% if you deposit jointly, especially if you have children. If you are single, however, you might not reach 7.5% and filing the standard deduction is the best solution.
What about HSA withdrawals?
If you have a Health Savings Account (HSA) and have lost your job or have retired, don’t worry, your savings may be deducted if you use it to pay your health premiums, such as with COBRA. Even after your COBRA eligibility expires, 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 other than medical expenses, you will need to count them as taxable income and pay an additional 20% penalty. The penalty is withdrawn if you are 65 years of age or older or if you are disabled.
Long-term care insurance matters
Yes, long-term care insurance is tax deductible. In fact, the IRS has increased the amount you can deduct for 2020 to $ 10,860 if you’re 70 or older. If you meet the AGI threshold of 7.5%, this counts as a medical expense on your taxes.
Retirement home expenses are also deductible. If you or your spouse is in a nursing home and the main reason is for medical care, the whole thing is deductible. Only the cost of medical care is deductible, but not meals and accommodation.
Better health insurance
If you are self-employed or have to pay your own health care premiums, such as through Medicare or the Marketplace, the question is where to start? There are so many private insurance companies out there, can choosing 1 be confusing? Don’t worry, Benzinga.com has compiled a comprehensive list of health insurance companies for you.
Make sure you deduct your health insurance premiums
If you are self-employed, purchase your insurance through Medicare or Marketplace, don’t forget to deduct your premiums from your taxes. Forgetting to take tax deductions for your health care premiums is like throwing money straight down the toilet.
The IRS allows you to deduct all medical expenses, including premiums, provided they total at least 7.5% of your adjusted gross income. Itemize your expenses or take the standard deduction, whichever is more profitable for you.
Frequently Asked Questions
Can Medicare Premiums Reduce Taxable Income?
Can Medicare Premiums Reduce Taxable Income?
Yes, health insurance premiums can reduce your taxable income. It all depends on whether you are self-employed or if 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.
You can not only deduct the premiums, but also the medical expenses. Make sure your expenses total more than 7.5% of your adjusted gross income.
Can I deduct my health insurance premiums in 2019?
Can I deduct my health insurance premiums in 2019?
It’s never too late to go back and file your taxes. In fact, you only have 3 years to go back and file overdue taxes, but for 2019 you still have plenty of time. If you didn’t file taxes, or even if you did and forgot to deduct your medical expenses, you can always go back and change your 2019 returns.
To learn more about tax deductions, see this Benzinga.com article titled What are the tax deductions for the self-employed?