Are Health Insurance Premiums and Medical Bills Tax-Deductible?

Medical bills can pile up quickly, but you may be entitled to tax relief.

Medical bills can pile up quickly, but you may be entitled to tax relief.

The cost of health care is increasing, and expenses can be quite high if you're uninsured or underinsured. Some of your unreimbursed and out-of-pocket medical costs may be deductible from your income tax. Knowing which medical expenses the IRS permits you to deduct will help you obtain the maximum amount of tax relief.

Who Can Deduct Medical Expenses?

Not all taxpayers are able to deduct their out-of-pocket health care costs. Taxpayers who file IRS Form 1040, as opposed to a 1040-A or 1040-EZ, and who also itemize their deductions on Schedule A, can take a deduction for medical expenses. Self-employed individuals and partners or shareholders in business entities can also deduct some health insurance costs.

Limits on Deductions

Individuals who deduct medical expenses on Schedule A are limited in the amount of deduction they can take. Only expenses above 7.5 percent of the adjusted gross income are deductible. For example, if your adjusted gross income is $50,000 -- 7.5 percent of which is $3,750 -- and your eligible medical expenses total $5,000, you can only deduct $1,250 of those expenses. Self-employed individuals deduct health insurance premiums on Form 1040, and other expenses on Schedule A.

Health Insurance Premiums

Health insurance premiums that you pay on a post-tax basis can be included in your medical expenses. If your employer pays a portion of your premium, you cannot deduct that amount. If your health insurance premiums are paid from your income on a pre-tax basis, those amounts also are not deductible. Allowed premiums include those for yourself, your spouse and your dependents. Self-employed individuals and business partners or shareholders can deduct out-of-pocket insurance premiums if the insurance is obtained through the business, rather than taken out personally.

Medical Bills and Expenses

Out-of-pocket medical bills are deductible on Schedule A, subject to the 7.5 percent floor. Allowed medical bills include those for doctors, hospitals, clinics, prescriptions, and other medical services. Expenses for dental and vision care, as well as long-term health care, are also allowed. Medical expenses that are reimbursed, such as through a health savings or flexible spending plan, cannot be deducted.

 

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