If I Pay My Own Health Insurance, Is It Tax Deductible?

Paying for your own health insurance raises questions about tax deductibility. The ability to deduct these costs depends on specific financial situations. Not all taxpayers can deduct health insurance premiums, so understanding the qualifying circumstances is important for accurate tax reporting.

Eligibility for Deducting Health Insurance Premiums

Eligibility for deducting health insurance premiums primarily depends on an individual’s employment status and whether they choose to itemize deductions. Self-employed individuals may deduct premiums as an “above-the-line” adjustment to income. This reduces their adjusted gross income (AGI) regardless of whether they itemize other deductions. To qualify, an individual must not be eligible for an employer-sponsored health plan, either through their own employment or their spouse’s.

For tax purposes, a self-employed individual includes sole proprietors, partners in a partnership, and members of a multi-member limited liability company (LLC) treated as a partnership. This also extends to shareholders owning more than 2% of an S corporation. The premiums paid must be for medical care coverage for the taxpayer, their spouse, and their dependents, and can include qualified long-term care insurance premiums, subject to age-based limits. This deduction generally applies to premiums paid throughout the year, even if they are paid through a qualified health plan offered on the Health Insurance Marketplace.

Individuals who are not self-employed may still deduct health insurance premiums, but these premiums are included as part of their overall medical expense deduction. This deduction is taken as an itemized deduction on Schedule A (Form 1040). To claim itemized medical expenses, the total qualifying expenses must exceed a certain percentage of the taxpayer’s adjusted gross income (AGI). This threshold has historically been 7.5% of AGI for most taxpayers.

Unlike the self-employed deduction, which reduces AGI directly, itemized medical expense deductions only provide a tax benefit if the total itemized deductions exceed the standard deduction for the taxpayer’s filing status. This means that many taxpayers who do not have substantial other itemized deductions may not benefit from deducting health insurance premiums through this method.

Qualifying Health-Related Expenses

Beyond health insurance premiums, many health-related expenses are deductible. These include costs for diagnosis, treatment, or prevention of disease, and for treatments affecting any body function. Common qualifying expenses include fees paid to doctors, dentists, surgeons, and other medical practitioners, as well as payments for hospital and nursing services. Prescription medications and insulin are also generally deductible medical expenses.

Dental care, including preventative treatments, fillings, and orthodontia, typically qualifies as a medical expense. Vision care expenses, such as eye exams, eyeglasses, contact lenses, and even laser eye surgery, are also generally includible. Additionally, the cost of medical equipment, supplies, and diagnostic devices, like crutches, wheelchairs, and blood sugar test kits, can be factored in. Transportation costs primarily for medical care, such as mileage to and from doctor’s appointments, can also be included at a set mileage rate.

When individuals receive premium tax credits (subsidies) through the Health Insurance Marketplace, only the portion of the health insurance premium that they actually pay out-of-pocket is eligible for deduction. Any amount covered by the premium tax credit cannot be included as a deductible medical expense because it was not directly paid by the taxpayer. If medical expenses, including premiums, are paid using distributions from a Health Savings Account (HSA), those expenses cannot be deducted again on a tax return. Distributions from an HSA are already tax-free if used for qualified medical expenses, so claiming them as a deduction would result in a double tax benefit.

Claiming Your Health Insurance and Medical Expense Deductions

The method for claiming health insurance and medical expense deductions depends significantly on an individual’s tax situation. Self-employed individuals deduct their health insurance premiums as an adjustment to income on Schedule 1 (Form 1040). This deduction is taken “above the line,” meaning it reduces the taxpayer’s adjusted gross income (AGI) before other deductions or credits are considered.

For individuals who itemize their deductions, health insurance premiums are grouped with other qualifying medical expenses on Schedule A (Form 1040), “Itemized Deductions.” On Schedule A, all eligible medical and dental expenses are subject to an Adjusted Gross Income (AGI) limitation. For example, if the AGI threshold is 7.5%, a taxpayer must calculate 7.5% of their AGI. Only the amount of medical expenses exceeding this 7.5% AGI threshold is deductible.

To illustrate, if a taxpayer has an AGI of $50,000 and the AGI threshold is 7.5%, then $3,750 (7.5% of $50,000) of medical expenses are not deductible. If this taxpayer incurred $5,000 in qualifying medical expenses, including health insurance premiums, only $1,250 ($5,000 – $3,750) would be deductible.

This deductible amount is then added to other itemized deductions, such as state and local taxes or home mortgage interest, to determine if the total exceeds the standard deduction for their filing status. If the total itemized deductions are greater than the standard deduction, the taxpayer will itemize; otherwise, they will take the standard deduction.