Unless you have a "Cadillac" health insurance plan, your health coverage is probably subject to deductibles, co-insurance and co-pays for office visits and prescription drugs. These additional payments can add up very quickly. The IRS gives you some ways to help defray their costs by either deducting them from your taxable income or paying for them with before-tax income.
Deductible Medical Expenses
If you itemize your deductions, the IRS lets you deduct all of your medical expenses, including co-pays and deductibles, with one limitation. In the 2013 tax year and beyond, you can only write off the medical expenses that you incur that are more than 10 percent of your adjusted gross income. For many people, this is a very high hurdle to cross. The only other way to shelter the money you spend on deductibles is to use pre-tax dollars.
Health Savings Accounts
A health saving account is a special type of bank account that can be used to pay medical expenses like co-pays when you have a qualified health insurance policy with a high deductible. You can deduct the money that you put into your HSA from your taxable income even if you claim the standard deduction, and the interest that the money accrues is also tax-free. HSAs are yours, so they stay with you when you switch jobs, and the money in them does not expire, so you don't need to rush to use them at the end of the year.
Flexible Spending Accounts
Set up as a part of your employer's benefit package if they choose to offer it, the FSA allows you to deposit money from your paycheck before taxes are taken from it. Like HSAs, FSAs can be used for medical expenses, including co-pays. Unlike HSAs, FSAs are tied to your employer and, most importantly, they expire at the end of the year, so any money that you have not spent essentially disappears.
If you're self-employed and don't want to or can't take advantage of these options, you may have one more indirect way to deduct your co-pays. Buy yourself a more expensive health insurance policy that has lower co-pays. When you do this, you're effectively prepaying your co-pays. Since you are allowed to deduct your health insurance premiums, this has a similar effect to deducting your co-pays.
- Jupiterimages/Comstock/Getty Images
- Are Humidifiers a Qualified FSA Item?
- Is a Higher or Lower Deductible Better With Health Insurance?
- What Expenses Are Allowed in a Section 125 Cafeteria Plan?
- Is the Money I Paid for My Children's Health Insurance Tax-Deductible?
- Can I Claim the Deduction on My Paycheck for Health Insurance Premiums Paid by My Employer?
- Can I Deduct My Health Insurance?