Is health insurance tax deductible? Here's what you can claim:

If you're struggling with high medical costs, you may be wondering if your health insurance is tax deductible.

If you have insurance through your employer, you generally cannot claim a medical expense deduction for your health insurance premiums. You can receive a tax deduction for your out-of-pocket expenses other than medical expenses. To deduct medical expenses, you need .

There is an exception for self-employed individuals, who can deduct their health insurance premiums without having to itemize their tax return.

IRS rules regarding medical expenses can be complex. We will explain what you need to know in advance.

How to deduct health insurance premiums and expenses

You can claim a medical expense deduction for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). Use Schedule A to itemize your deductions. Then transfer the total deduction to IRS Form 1040.

But for many taxpayers, it doesn't make sense to itemize medical expenses, even if they are relatively high. That's because the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction.

You only need to itemize if the total of all deductions exceeds the standard deduction for that tax year. For 2023, the following standard deduction rates apply (use these numbers when preparing your return due April 15, 2024):

• Individually declare single or married: $13,850

• Joint notification by husband and wife: $27,700

• Head of household: $20,800

If you're not sure whether itemizing or taking the standard deduction makes the most sense, consult a tax professional.

Rules and requirements

Out-of-pocket medical expenses paid for you, your spouse, and dependents can be taken as an itemized deduction if they total more than 7.5% of your adjusted gross income.

Your health insurance premiums, whether through your employer's plan or your own health insurance, will factor into these costs. (Note that this is a somewhat rare exception for employer plans. Many employers deduct their employees' premium contributions before taxes are taken from their paychecks.) If the fee is paid on a pre-tax basis, it cannot be deducted.)

Below is an example of how the 7.5% threshold works.

Let's say you earn $100,000 a year and spend $12,000 on medical expenses. Her 7.5% of $100,000 equates to $7,500 and therefore qualifies him to deduct medical expenses. This is less than medical expenses. The IRS will allow a deduction of $4,500 ($12,000 – $7,500 = $4,500) instead of the full $12,000.

Keep in mind that the expenses you pay using a Health Savings Account (HSA) or Flexible Spending Account (FSA) are not tax deductible because you already receive a tax deduction on your contributions.

Deductible expenses

Here are some examples of expenses that the IRS allows you to itemize. However, this list is not exhaustive.

• Fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and non-traditional health workers

• Hospital treatment costs

• Residential nursing home costs (if you live in a nursing home primarily for medical care). If medical care is not the primary reason for entering a nursing home, only the portion of costs attributable to medical care is deductible.

• acupuncture

• Inpatient drug and alcohol abuse treatment

• Prescription drugs and insulin

• Smoking cessation programs and prescription medications to treat nicotine withdrawal

• A weight loss program if prescribed by your doctor to treat obesity or a medical condition (in limited circumstances, this may include the cost of joining a gym or fitness club)

• Dentures, glasses (both reading glasses and prescriptions), contact lenses, and hearing aids

• Walking aids such as crutches and wheelchairs

• Service animal costs for people who are visually or hearing impaired

• Transportation expenses related to medical care

• Health insurance (but only if you pay the premium yourself) and nursing care insurance premiums

• Medicare premiums, including Medicare Advantage and Medigap plans.

The IRS does not allow you to deduct the following expenses on your tax return:

• Part of the health insurance premium paid by the employer

• Funeral/burial expenses

• Non-prescription drugs (including non-prescription nicotine gum and patches)

• Toiletries, cosmetics, toothpaste

• Most cosmetic surgery

• Travel to improve general health and wellness

Couples filing jointly can deduct up to the annual limit based on their respective ages. Please note that this only applies to long-term care insurance. Life insurance premiums are not deductible.

How to deduct HSA contributions

If you contribute to a health savings account in 2023, the contribution will reduce your taxable income. If you create them through your employer, they are created on a pre-tax basis, similar to how you fund a traditional 401(k). If you put money into the account yourself, your contributions are tax deductible, even if you receive the basic deduction. However, you can only contribute to an HSA if you have a high-deductible health plan (HDHP).

HSAs offer three tax benefits when it comes to saving on medical and dental expenses. If you donate pre-tax dollars, the earnings in your account will also be tax-free. Withdrawals for eligible medical expenses are also tax-free.

Use line 9 of Form 8889 to report HSA contributions made through employer payroll deductions. (If you funded your HSA directly, use Line 2 instead.) Note that the form asks for an “employer” contribution. This includes any money you or your employer deposits into your account. Look for this information in box 12, code W, on your W-2 form.

Health insurance premium deduction for sole proprietorships

Generally, if you, your spouse, and are self-employed and have net annual income, you can deduct medical and dental insurance premiums. This tax deduction is known as an above-the-line deduction, which means you can take advantage of it without having to itemize. Taking this deduction reduces your adjusted gross income.

Eligibility for this deduction is determined on a monthly basis. You are only eligible to claim the deduction for months in which neither you nor your spouse were eligible for employer-sponsored health insurance.

For example, let's say you're a single filer and eligible for employer health insurance for the first seven months of the year. I then quit my job and became self-employed, purchased my own health insurance plan on the Health Insurance Marketplace, and paid the premiums for the remaining five months of her life.

You can deduct 5 months of insurance premiums paid, but not 7 months of employment insurance. However, the deduction cannot exceed your net income for the year. If he paid $5,000 in health insurance premiums over the last five months, but on Schedule C he only reports a benefit of $4,000, his maximum deduction would be $4,000.

Depending on your income and family size, you may also be eligible for premium credits when purchasing insurance through the Marketplace. You can choose to pay the tax credit directly to your insurance company to offset your monthly expenses, or you can claim the tax credit by filing IRS Form 8962 at tax time.

To claim the self-employment tax credit, enter the credit amount on Part II of Schedule 1 of Form 1040. Don't make bullet points.

FAQ

Are COBRA payments tax deductible?

If you have COBRA insurance that continues to be covered through your previous employer, you may be able to deduct your payments if you are self-employed and neither you nor your spouse qualify for occupational health insurance. There is a gender. Otherwise, COBRA payments can only be deducted if they are itemized and their total unreimbursed out-of-pocket medical expenses account for more than 7.5% of his AGI.

Does health insurance reduce taxable income?

Health insurance often reduces taxable income because the amount employees pay in premiums is typically excluded from taxable income. Unreimbursed medical expenses that exceed his 7.5% of AGI can lower his taxable income when he itemizes his return. Self-employed individuals can also reduce their taxable income by deducting the full amount of their health insurance premiums, unless they qualify for employer coverage.

Is it worth claiming medical expenses on your taxes?

It depends on whether the sum of all your itemized deductions (including deductions for unreimbursed medical expenses, charitable contributions, etc.) exceeds the standard deduction. If your itemized deductions, including unreimbursed medical expenses that exceed 7.5% of your AGI, are higher than the standard deduction, it may be worth claiming the medical expenses on your taxes. If your deductible is less than the standard deduction, it's best to keep the standard deduction and refrain from claiming medical expenses.