Health insurance premiums can take a major bite out of your budget. This is especially true if you pay for private health insurance. The Internal Revenue Service does provide some relief inthis area for taxpayers on their federal income tax returns. In some instances, you don't even have to itemize your deductions to benefit from the tax savings.
Health Insurance Premiums
If you have health insurance provided by your employer, but you also pay health insurance premiums, you may include the out-of-pocket portion of your premiums as medical expenses if you itemize deductions on your federal income tax return. If your employer does not provide health insurance, you may count your entire premium toward the medical expense deduction. Your medical expenses must exceed 7.5 percent of your adjusted gross income. Beginning Dec. 12, 2012, your medical expenses must exceed 10 percent of your AGI to be eligible for the deduction.
If you are self-employed and buy your own health insurance, you may deduct your entire insurance premium on Form 1040, even if you do not itemize your deductions. The policy must be established in your name or in the name of your business. You must also not have the option of health care coverage from another source, such as your spouse's employer-provided policy.
HSAs and MSAs
If you have a high-deductible health insurance policy to save money on premiums, you may end up with huge out-of-pocket costs if you actually get sick. To lessen the financial bite, the IRS has established several savings plans for covering health care costs not covered by your insurance premiums. Health Savings Accounts are established by employers, but primarily or exclusively funded by employees. You can deduct contributions to a HSA on your federal income taxes even if you don't itemize deductions. Contributions made by your employer can be subtracted from your gross income. If you're self-employed with a high deductible insurance policy, you may establish a Medical Savings Account and deduct your contributions from your federal income taxes, even if you don't itemize.
Health Coverage Tax Credit
If you're eligible for the Health Coverage Tax Credit, you can have up to 72.5 percent of your health insurance premiums covered by the federal government. The requirements are strict: You must pay at least 50 percent of the premiums of an eligible health insurance policy, and you cannot be a dependent on another person's tax return. You must be receiving "Trade Adjustment Assistance" benefits, or at least 55 years old and receiving pension payments from the Pension Benefit Guaranty Corporation. Your spouse and family may also be eligible. You can receive the benefit as a monthly payment or as a lump sum by filing Form 8885 with your federal income tax return, even if you don't itemize deductions.
- Internal Revenue Service: Topic 502 -- Medical and Dental Expenses
- Internal Revenue Service: Publication 969 -- Health Savings Accounts and Other Tax-Favored Health Plans
- Bankrate.com: Deductible Health Insurance Premiums
- Bankrate.com: Deducting Private Health Insurance
- Mayo Clinic: Health Savings Accounts -- Is an HSA Right for You?
- Internal Revenue Service: HCTC -- Eligibility Requirements and How to Receive the HCTC
- Internal Revenue Service: HCTC: Information for Monthly Participants and Yearly Filers
- Internal Revenue Service: HCTC: Eligibility Requirements -- General Requirements
- Internal Revenue Service: HCTC: Eligibility Requirements --Qualified Health Plan Requirements
- Internal Revenue Service: Schedule A -- Itemized Deductions
- Internal Revenue Service: Publications and Forms for the Self-Employed
- U.S. Department of the Treasury: Health Savings Accounts
- Internal Revenue Service: Publication 502, Medical and Dental Expenses
- Internal Revenue Service: The Health Coverage Tax Credit (HCTC) Program
- Internal Revenue Service: Health Coverage Tax Credit
Chris Blank is an independent writer and research consultant with more than 20 years' experience. Blank specializes in social policy analysis, current events, popular culture and travel. His work has appeared both online and in print publications. He holds a Master of Arts in sociology and a Juris Doctor.