Are Health Insurance Premiums Deductible in 2018?

Understanding the deductibility of health insurance premiums for tax purposes is a common inquiry. This article clarifies the rules governing the deduction of health insurance premiums for the 2018 tax year.

Deductibility for Most Taxpayers

For most individuals, health insurance premiums are treated as medical expenses, which may be deductible if certain conditions are met. To claim these premiums, taxpayers generally need to itemize their deductions on Schedule A (Form 1040), rather than taking the standard deduction. The Tax Cuts and Jobs Act (TCJA) of 2017 altered many tax provisions, and for the 2018 tax year, it maintained a specific threshold for medical expense deductions.

During 2018, taxpayers could deduct the amount of qualified medical expenses, including health insurance premiums, that exceeded 7.5% of their Adjusted Gross Income (AGI). This threshold was a temporary provision from the TCJA, allowing a lower barrier for deduction compared to the 10% AGI threshold that was set to return in subsequent years. For example, if a taxpayer had an AGI of $50,000, only medical expenses over $3,750 (7.5% of $50,000) could be deducted. If their total qualifying medical expenses were $6,000, they could deduct $2,250.

Only premiums paid with after-tax dollars qualify for this deduction. Premiums paid through an employer’s pre-tax plan, a Flexible Spending Account (FSA), or a Health Savings Account (HSA) are not eligible for this medical expense deduction because they already provide a tax benefit. Premiums for medical, dental, and vision insurance are considered qualifying medical expenses. The increased standard deduction under the TCJA for 2018 meant fewer individuals found it advantageous to itemize deductions.

Deductibility for Self-Employed Individuals

Self-employed individuals can deduct health insurance premiums “above-the-line,” meaning it reduces their Adjusted Gross Income (AGI) directly. This adjustment to income is claimed on Schedule 1 (Form 1040) and does not require the taxpayer to itemize deductions.

To qualify for this deduction, the self-employed individual must not have been eligible to participate in an employer-sponsored health plan, including one offered by a spouse’s employer. This eligibility is determined on a month-by-month basis. The deduction cannot exceed the taxpayer’s net earnings from self-employment, ensuring that the deduction does not create a business loss.

This deduction encompasses premiums for medical, dental, and vision insurance for the self-employed individual, their spouse, and dependents. It also includes qualified long-term care insurance premiums, subject to specific age-based limits. This “above-the-line” deduction reduces overall taxable income.

Deducting Long-Term Care Insurance Premiums

Premiums paid for qualified long-term care insurance contracts are treated as medical expenses for tax purposes. These premiums are subject to annual age-based limits set by the Internal Revenue Service (IRS). For 2018, these limits varied by the individual’s age.

For those aged 40 or less, the maximum deductible amount was $420; for those over 40 but not more than 50, it was $780. Individuals over 50 but not more than 60 could deduct up to $1,560, while those over 60 but not more than 70 had a limit of $4,160. For taxpayers over 70, the maximum deductible amount was $5,200. Any premium amount paid above these limits is not considered a deductible medical expense.

These qualified long-term care premiums are included either as part of the total medical expense deduction for itemizers on Schedule A (subject to the 7.5% AGI threshold) or as part of the self-employed health insurance deduction on Schedule 1. For self-employed individuals, these premiums are still subject to both the age-based limits and the net earnings from self-employment limitation.

How to Report Health Insurance Premium Deductions

Reporting health insurance premium deductions involves specific forms and line numbers, depending on the type of deduction claimed. For taxpayers who itemize their deductions, the total qualifying medical expenses, which include eligible health insurance premiums, are reported on Schedule A (Form 1040), Itemized Deductions. Specifically, these expenses are entered on Line 1, “Medical and dental expenses,” of Schedule A. The amount deductible is then calculated on Schedule A by subtracting the 7.5% AGI threshold.

Self-employed individuals claiming the self-employed health insurance deduction report this amount as an adjustment to income. This deduction is entered on Schedule 1 (Form 1040), “Additional Income and Adjustments to Income.” The specific line for this deduction on Schedule 1 is Line 29. This figure then contributes to the calculation of your Adjusted Gross Income on your main Form 1040.

Maintaining meticulous records is essential. This includes statements from your health insurance provider showing premiums paid, proof of payment, and any other documentation related to your medical expenses. The IRS provides forms and instructions on its website, and tax software can also assist in correctly populating the necessary information based on your entries.