IS HEALTH INSURANCE TAX DEDUCTIBLE?

Understanding tax deductions can be tricky, especially with expenses like health insurance. For many, health insurance is a significant annual expenditure, and the possibility of deducting it from your taxes could offer substantial savings. The rules vary based on your employment status and the type of health insurance you have. Keep reading to discover the ins and outs of health insurance deductions and see if you can reduce your taxable income.

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Is Health Insurance Tax Deductible?

For many taxpayers, health insurance premiums can be deducted, under certain conditions, from their taxable income. This deduction can apply to the costs of policies covering medical care, dental and even some long-term care insurance plans. However, the specifics of how you can claim this deduction depend on your employment status, the type of health insurance and several other factors.

For Self-Employed Individuals

For self-employed individuals, health insurance premiums can lead to valuable deductions. Here’s what you need to know:

• You’re eligible for this deduction if, for any part of the year, you and your spouse didn’t have access to a health plan sponsored by an employer.
• The premiums deductible include those for medical, dental and certain long-term care insurance for you, your spouse and dependents.
• The deduction cannot exceed the earned income you collect from your business.

For Itemizers

Taxpayers who itemize deductions have the opportunity to deduct unreimbursed medical and dental expenses, including health insurance premiums, as long as those expenses exceed 7.5% of their AGI. This option is available on Schedule A (Form 1040) and applies to expenses paid for yourself, your spouse and your dependents. However, only the amounts that aren’t compensated for by insurance or other means can be deducted.

Expenses That Are Not Deductible

While many medical and health insurance expenses offer tax relief, there are specific costs that the IRS does not allow as deductions. Recognizing these can help in accurately reporting tax filings:

• Cosmetic procedures: Expenses for cosmetic surgery not necessary for medical reasons, such as for appearance improvement, are not deductible.
• General health items: Costs associated with general health, such as non-prescription drugs, health club dues for general fitness and diet food, are not considered deductible medical expenses.
• Certain insurance premiums: Some insurance costs can’t reduce your taxes. These include payments for life insurance or policies that pay you for being unable to work, losing a limb or similar situations. Also, you can’t deduct premiums for health insurance that you didn’t count as part of your medical expenses before.

Maximizing Your Health Insurance Deduction

To make the most of health insurance deductions and reduce taxable income, it’s important to consider various strategies and rules that apply to different situations. Here are some key takeaways to know:

• Consider HSA contributions: Contributions to a health savings account can be deducted. If you’re eligible for an HSA, maximizing your contributions can provide additional tax savings alongside your health insurance deductions.
• Review long-term care insurance: The IRS allows for the deduction of qualified long-term care insurance premiums up to set limits based on age. Assessing these deductions can further lower your taxable income.
• Understand the impact of AGI: If you’re listing out deductions, you can only deduct medical expenses, including health insurance, that are more than 7.5% of your AGI. If your AGI is lower, you get to deduct more of these expenses, which can save you money on taxes.

Final Take

Whether you’re working for yourself or itemizing deductions, there are ways to possibly lower your tax bill with health insurance costs. Just remember, not all health-related costs can help with taxes, like certain insurance premiums or non-prescription drugs. Taking a closer look at your AGI and medical expenses could unlock these tax benefits. If it seems too complex, it might be a good idea to talk to a tax expert. They can help make sure you’re getting all the tax breaks you should, keeping your finances healthy just like your insurance keeps you healthy.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

This article originally appeared on GOBankingRates.com: Is Health Insurance Tax Deductible?