Are Health Insurance Premiums Tax-Deductible?

Janet Berry-Johnson
Written by
Janet Berry-Johnson
Janet Berry-Johnson
Written by
Janet Berry-Johnson
Janet Berry-Johnson, CPA is a freelance writer with a background in accounting and income tax planning and preparation. She's passionate about making complicated financial topics accessible to readers. She lives in Omaha, Nebraska with her husband and son and their rescue dog, Dexter. Visit her website at www.jberryjohnson.com.
Evelyn Pimplaskar
Edited by
Evelyn Pimplaskar
Evelyn Pimplaskar
Edited by
Evelyn Pimplaskar
Editor-in-Chief, Director of Content
Evelyn Pimplaskar is Insurify’s director of content. With 30-plus years in content creation – including 10 years specializing in personal finance – Evelyn’s done everything from covering volatile local elections as a beat reporter to building fintech content libraries from the ground up.Prior to joining Insurify, she was editor-in-chief at Credible, where she launched and developed the lending marketplace’s media partnership’s content initiative, and managed the restructuring of the editorial team to enhance content production efficiency. Formerly, as Credit Karma’s tax editor, Evelyn built a library of more than 300 educational articles on federal and state taxes, achieving triple-digit year-over-year growth in e-files from organic search.Her early career included work as a content marketer, vice president and managing officer of a boutique public relations agency, chief copy editor for 14 weekly Forbes publications, reporting for large and mid-sized daily newspapers, and freelancing for the Associated Press.Evelyn is passionate about creating personal finance content that distills complex topics into relatable, easy-to-understand stories. She believes great content helps empower readers with the information they need to make important personal finance decisions.

Updated December 14, 2022

Reading time: 7 minutes

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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.

For Example:

Let’s say you’re single and paid $2,500 in premiums for health insurance you purchased on the open marketplace this year. The standard deduction for single filers in 2022 is $12,950, so you wouldn’t benefit from claiming your health insurance premiums.

But let’s say you paid $15,000 in total itemized deductions this year, including medical expenses, mortgage interest, and charitable contributions. In that case, your total itemized deductions exceed the $12,950 standard deduction, so claiming your health insurance premiums would lower your tax bill.

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

  • As a self-employed person, you can deduct the cost of your health insurance premiums on your tax return, even if you don’t itemize.

    To qualify for the deduction, your health insurance must be for yourself, your spouse, and your dependents. You must have net profit from self-employment for the year in order to claim your self-employed health insurance premiums as an adjustment to income on Schedule 1 attached to your Form 1040.[1]

  • You may be able to prepay health insurance premiums to take a deduction this year rather than wait for next year. The only caveat is that you can’t prepay for policies that extend more than 12 months after the end of the tax year when you made the payment.

    For example, say you pay $5,000 in December 2022 for a health insurance policy effective from Jan. 1, 2023, through Dec. 31, 2023. You could deduct that payment on your 2022 tax return. However, you couldn’t prepay for your 2024 policy and deduct the payments in 2022.

  • Besides your health insurance premiums, you can also deduct premiums paid for dental insurance, vision insurance, and long-term care insurance.

  • You can deduct out-of-pocket medical costs paid to diagnose, cure, prevent, or treat a disease, illness, or injury. These include fees paid to doctors and hospitals, prescription medications, and lab fees. You can find a list of deductible medical expenses in IRS Publication 502. You can deduct out-of-pocket medical costs paid to diagnose, cure, prevent, or treat a disease, illness, or injury. These include fees paid to doctors and hospitals, prescription medications, and lab fees. You can find a list of deductible medical expenses in IRS Publication 502.

  • The standard deductions for the 2022 tax year are as follows:

    • $12,950 for single taxpayers and married taxpayers filing separately

    • $25,900 for married taxpayers filing jointly

    • $19,400 for heads of household[6]

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Sources

  1. IRS. "Topic No. 502 Medical and Dental Expenses." Accessed December 14, 2022
  2. HealthInsurance.org. "Self-employed health insurance deduction." Accessed December 14, 2022
  3. U. S. Department of Labor Employee Benefits Security Administration. "FAQs on COBRA Continuation Health Coverage for Workers." Accessed December 14, 2022
  4. Department of the Treasury Internal Revenue Service. "Medical and Dental Expenses." Accessed December 14, 2022
  5. IRS. "Retirement Topics - IRA Contribution Limits." Accessed December 14, 2022
  6. IRS. "IRS provides tax inflation adjustments for tax year 2022." Accessed December 14, 2022
Janet Berry-Johnson
Written by
Janet Berry-Johnson
Linkedin

Janet Berry-Johnson, CPA is a freelance writer with a background in accounting and income tax planning and preparation. She's passionate about making complicated financial topics accessible to readers. She lives in Omaha, Nebraska with her husband and son and their rescue dog, Dexter. Visit her website at www.jberryjohnson.com.

Learn More
Evelyn Pimplaskar
Edited by
Evelyn Pimplaskar
Linkedin

Editor-in-Chief, Director of Content

Evelyn Pimplaskar
Edited by
Evelyn Pimplaskar
Editor-in-Chief, Director of Content
Evelyn Pimplaskar is Insurify’s director of content. With 30-plus years in content creation – including 10 years specializing in personal finance – Evelyn’s done everything from covering volatile local elections as a beat reporter to building fintech content libraries from the ground up.Prior to joining Insurify, she was editor-in-chief at Credible, where she launched and developed the lending marketplace’s media partnership’s content initiative, and managed the restructuring of the editorial team to enhance content production efficiency. Formerly, as Credit Karma’s tax editor, Evelyn built a library of more than 300 educational articles on federal and state taxes, achieving triple-digit year-over-year growth in e-files from organic search.Her early career included work as a content marketer, vice president and managing officer of a boutique public relations agency, chief copy editor for 14 weekly Forbes publications, reporting for large and mid-sized daily newspapers, and freelancing for the Associated Press.Evelyn is passionate about creating personal finance content that distills complex topics into relatable, easy-to-understand stories. She believes great content helps empower readers with the information they need to make important personal finance decisions.