Are Health Insurance Premiums Tax-Deductible?

Health insurance is a necessary expense, whether you buy your own through the open marketplace or get coverage through your employer-sponsored plan. In some cases, you may actually be able to deduct your health insurance premiums from your taxable income — but it’s complex.

Let’s explore the tax deductibility of health insurance premiums, whether you pay for them through your employer, buy insurance on the open market, or are self-employed.

Can you deduct health insurance premiums?

If you get your health insurance through your employer, you can’t take a tax deduction for the premiums. That’s because they’re already deducted from your taxable income. Your employer takes the money for your share of the total premium out of your pay before calculating your taxes. This means you don’t have to pay taxes on that money.^[1]

Since your health insurance is then paid for with pre-tax dollars, you can’t “double-dip” by deducting those premiums on your tax return.

But if your health insurance premiums aren’t taken out pre-tax, or you pay for a policy outside of a job, the IRS allows you to claim out-of-pocket medical expenses, including health insurance premiums, as itemized deductions.

Learn More: Medicare Premiums and Tax Deductions: Here’s How to Save Big

Which health insurance plans may be tax-deductible?

You may get health insurance from a variety of sources, so let’s look at the deductibility of different kinds of insurance plans.

• ACA marketplace plans: The health insurance marketplace is an online system in the U.S. that allows people to shop for health insurance plans. The Affordable Care Act (ACA) created the marketplace. You can use the marketplace to compare different health insurance plans and find one that fits your needs and budget. The marketplace also offers subsidies to help people pay their premiums if they qualify. Whether you can deduct those premiums depends on whether you get a subsidy and how much it covers. For example, if you receive a subsidy that pays for 60% of your health insurance premium, you can only deduct 40% of your premiums on your tax return.^[2]

• Employer-sponsored plans: As mentioned above, when you have health insurance through your job, any portion of the premiums you pay should be taken out of your paycheck before your employer calculates income and payroll taxes. Since you don’t have to pay taxes on that money, you can’t deduct the premiums on your tax return.

• COBRA: COBRA insurance is a type of health insurance created by the Consolidated Omnibus Budget Reconciliation Act of 1985. COBRA allows people to continue their health insurance coverage after they lose their job. Ordinarily, when you lose your job, your health insurance coverage also ends. But with COBRA insurance, you can continue your coverage for up to 18 months as long as you pay the premiums yourself.^[3] COBRA premiums can be tax-deductible, provided you itemize deductions on your federal income tax return.

• Short-term health insurance: Short-term health insurance is a type of health insurance designed to be temporary. It usually lasts three to six months, although some policies are shorter or longer. Short-term health insurance is usually not as comprehensive as a traditional health insurance plan, but it can be a good option for people who are between jobs or don’t have other coverage options. Premiums for short-term health insurance are tax-deductible.

How can you deduct health insurance costs?

If you pay for your health insurance premiums out of pocket, you can include those costs as an itemized deduction on your tax return.

To claim your health insurance premiums as a medical expense deduction, you’ll need to itemize your deductions on your tax return. This means you’ll have to calculate your total itemized deductions, including medical expenses, home mortgage interest, state and local taxes, and charitable contributions, and compare them to the standard deduction available for your filing status. You can save money by itemizing if your itemized deductions are greater than your available standard deduction.

How to calculate your healthcare tax deduction

There’s one more wrinkle in deducting health insurance costs because the IRS only allows you to deduct qualifying medical expenses that exceed 7.5% of your adjusted gross income (AGI).^[1]

For example, say your AGI is $100,000. In 2022, you had the following medical expenses:

• $300 for prescription medication

• $8,000 in health insurance premiums

• $150 in doctor copays

• $300 in lab fees

You have a total of $8,750 in medical expenses, but you can only deduct $1,250 — the amount that exceeds $7,500, or 7.5% of your AGI.

What medical expenses are tax-deductible?

IRS rules allow you to deduct medical expenses “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure of the body.”^[1]

IRS Publication 502 includes a long list of deductible expenses, including standard costs like prescription medications, doctor visits, copays, and lab fees. But it also includes expenses you might not have considered, such as the cost of bandages and other medical supplies, fertility treatments, and lodging while receiving medical care.

Learn More: How to Switch Back to Medicare from Advantage Plans

Can you deduct copays?

Yes, copays are tax deductible if they’re paid as part of a qualifying medical, dental, or vision treatment.

Can you deduct prescriptions?

Prescriptions are tax-deductible, as are amounts paid for insulin. However, over-the-counter medications that a doctor doesn’t prescribe are not deductible.

Can you deduct health savings account contributions?

Yes, contributions to a health savings account (HSA) are tax-deductible as long as they’re not made with pre-tax dollars. The money in your HSA grows tax-free, and you can use the funds to pay for qualifying medical expenses at any time. You can’t deduct any medical expenses paid for with money from your HSA.

What medical expenses aren’t tax-deductible?

Several medical expenses can’t be deducted on your tax return. Over-the-counter medications and cosmetic surgery are two common examples.

You also can’t deduct any general health and well-being expenses, such as toothpaste, gym dues, vitamins, or diet food. However, you can include the cost of a weight-loss program if it’s used to treat a specific disease diagnosed by a physician, such as hypertension or heart disease.^[4]

Other ways to lower your income tax bill

You can take a number of steps to lower your tax bill, but they depend on your specific situation. Here are a few general tips:

• Claim all the tax deductions and tax credits you’re eligible for. This includes things like the child tax credit, the earned income tax credit, and the student loan interest deduction.

• Save for retirement. One of the best ways to reduce your taxable income is to contribute money to a 401(k) or traditional IRA. These retirement accounts allow you to save money on a pre-tax basis, which can lower your tax bill each year. The amount you can contribute to a 401(k) or traditional IRA depends on your income and filing status. For example, in 2022, you can contribute up to $20,500 per year to a 401(k). If you’re 50 or older, you can make an additional “catch-up” contribution of $6,500, for a total contribution of $27,000. If you don’t have an employer-sponsored retirement plan, you can contribute up to $6,000 to an IRA — $7,000 if you’re 50 or older.^[5]

• Consider using a tax preparer. If you’re not confident about completing your own tax return, hiring a professional can be a big help. Tax preparers are familiar with all the deductions and credits available and can help ensure you get the most out of them.

Health insurance premiums and taxes FAQs