How health insurance premiums are treated
Whether your premiums are deductible depends largely on how you get your coverage and whether you paid with pre-tax or after-tax dollars. The table below shows the general tax treatment for common types of health insurance:
| Coverage | Tax treatment |
|---|---|
| Employer plan paid pre-tax | Not deductible because the premiums weren’t included in taxable income |
| Employer plan paid after tax | May count toward the itemized medical expense deduction |
| Self-employed coverage | May qualify for the self-employed health insurance deduction |
| Marketplace coverage | Only the premium amount not covered by the Premium Tax Credit may be deductible |
| COBRA coverage | Out-of-pocket premiums may count toward the itemized medical expense deduction |
| Medicare | Medicare Part B and Part D premiums may count as medical expenses |
Source: Internal Revenue Service (1, 2)
The self-employed health insurance deduction
If you had self-employment income and a net profit, you may be able to deduct premiums for:
- Medical, dental, and vision coverage
- Qualified long-term care insurance
- Coverage for yourself, your spouse, and your dependents
- Coverage for certain children under age 27 (they don’t have to be claimed as dependents)
A few limits apply:
- The deduction can’t exceed the earned income from the business that established the plan.
- You can’t claim it for months when you were eligible for a subsidized health plan through your employer or your spouse’s employer.
To claim the deduction, you’ll use Schedule 1 (Form 1040). In some cases, you may need to use the worksheet in the Form 1040 instructions or Form 7206.
Marketplace (ACA) premiums and the premium tax credit
The Premium Tax Credit lowers the cost of qualifying Health Insurance Marketplace coverage. When calculating a deduction:
- You can’t deduct the portion of your premiums paid by the credit.
- Only the amount treated as paid by you after reconciling the credit on Form 8962 may qualify.
- Self-employed taxpayers may need to follow the special calculation rules in IRS Publication 974.
Ensure your income used to calculate your credit is as accurate as possible. If you overestimate, you could end up having to repay any excess.
The itemized medical expense deduction
If you don’t qualify for the self-employed deduction, you may be able to include eligible premiums with your other unreimbursed medical and dental expenses.
To claim the deduction:
- Your total qualifying expenses must exceed 7.5% of your adjusted gross income (total income minus certain adjustments).
- You must itemize deductions on Schedule A.
- Only the amount above the 7.5% threshold is deductible.
For example, 7.5% of a $60,000 AGI is $4,500. If you had $7,000 in qualifying expenses, up to $2,500 could be deductible.
Note: If you’re traditionally employed, you’ll only claim itemized deductions if your eligible write-offs exceed the standard deduction for your filing status.
