Can You Write Off Insurance Premiums on Your Taxes?

Understanding the tax implications of insurance premiums is essential for maximizing deductions and reducing taxable income. Knowing which insurance expenses can be written off plays a significant role in effective tax strategy.

Qualified Premiums for Itemized Deductions

Certain insurance premiums may be included in itemized deductions, reducing taxable income. The IRS permits the deduction of medical and dental insurance premiums that exceed 7.5% of the taxpayer’s adjusted gross income (AGI) for the tax year 2024. For instance, if a taxpayer’s AGI is $100,000, only the portion of qualified premiums above $7,500 is deductible.

Qualified premiums encompass medical, dental, and long-term care insurance for the taxpayer, their spouse, or dependents. Medicare Part B, Part D, and supplemental Medicare policies are also deductible. However, premiums paid through pre-tax plans, such as employer-sponsored cafeteria plans, are excluded from deductions since they are already untaxed.

Distinction Between Self-Employed and Employees

Self-employed individuals can deduct 100% of their health insurance premiums directly from gross income, offering a notable tax advantage. This deduction applies even without itemizing, provided the individual lacks access to an employer-subsidized health plan through their own or a spouse’s employment.

Employees, by contrast, can only deduct premiums if they itemize deductions and if the expenses surpass the 7.5% AGI threshold. Additionally, premiums paid with pre-tax dollars in employer-sponsored plans are not eligible for further deduction.

Employer-Reimbursed Premiums

Employer-reimbursed premiums, considered a fringe benefit, may be excluded from an employee’s taxable income if part of a qualified plan. For example, Health Reimbursement Arrangements (HRAs) allow employees to receive tax-free reimbursements for certain medical expenses and premiums, providing financial relief and flexibility.

Employers must maintain thorough documentation to ensure compliance with tax regulations. Records should detail the type of insurance covered, reimbursement amounts, and dates of payment.

Other Applicable Insurance Premium Tax Treatments

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) allow pre-tax contributions for qualifying medical expenses, including premiums for specific insurance types such as long-term care. These accounts reduce taxable income and help set aside funds for future medical needs.

Small business owners may deduct premiums for policies protecting business assets, liability, or interruption as a business expense under IRC Section 162. Maintaining detailed records, such as policy agreements and payment receipts, is vital for substantiating these deductions during tax filings.

Documentation for Claiming Premiums

Proper documentation is critical when claiming insurance premium deductions. The IRS requires clear evidence to support deductions, making accurate and organized records essential.

For individual taxpayers, documentation should include invoices or receipts from insurance providers specifying premium amounts, payment dates, and coverage details. Bank or credit card statements can supplement this but should be paired with original insurance documents. If premiums cover dependents or spouses, proof of relationship, such as marriage or birth certificates, may be required.

Self-employed individuals and businesses should maintain records linking premiums directly to self-employment or business activities. For example, a business owner deducting liability insurance premiums should retain the policy agreement, proof of payment, and evidence that the insurance was necessary for business operations. Organized recordkeeping ensures compliance and simplifies tax preparation.