Can I Deduct My Health Insurance?

by Mark Kennan, Demand Media
    Only Form 1040 users can deduct health insurance premiums.

    Only Form 1040 users can deduct health insurance premiums.

    Whether you have your health insurance premiums taken out of your paycheck or you pay for them from your bank account, they can still take a bite out of your bottom line. However, you might be able to use those costs to increase your tax refund by claiming a deduction -- if you're not already excluding those costs from your taxable income.

    Paid With After-Tax Dollars

    To deduct your health insurance, you must pay for it with after-tax dollars. Some employers take out your share of the insurance premiums before reporting your taxable income, so that the premiums don't count. If so, you've already received a tax benefit for them because they weren't included in your taxable income, so you can't deduct them. For example, if your salary is $50,000 and your employer withholds $3,000 for premiums before taxes, you'll only report $47,000 of taxable income, but you can't deduct your premiums.

    Deductible Health Insurance

    To be deductible, the insurance has to pay for medical services like surgery, hospital visits, prescription drugs and dental care. It can also provide long-term care. If you have a policy that provides for both medical care payments as well as other payments, you can deduct the health insurance portion if the charge is reasonable and is separately stated in the insurance contract. For example, if your policy also pays you cash if you can't work to cover non-medical expenses, you can still deduct the health insurance portion of the premiums as long as that portion is stated separately.

    Self-Employed Premiums

    If you're self-employed, you might be able to deduct your health insurance as an adjustment to income rather than using the itemized medical expenses deduction. To do so, you must set up the health insurance under your business name and you can't claim premiums for any month that you're eligible for health insurance through your employer or your spouse's employer. In addition, you can't deduct more than your net self-employment income.

    General Health Insurance Deduction

    If you're not self-employed, your qualifying health insurance costs count toward figuring your medical expenses deduction. However, you can only deduct the costs that exceed the minimum percentage of your adjusted gross income. For 2012, that percentage is 7.5, but it increases to 10 percent in 2013. Your health insurance premiums alone might not get you a deduction, but combined with other medical expenses you might be able to claim a deduction if you itemize.

    About the Author

    Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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