Is Student Health Insurance a Qualified Education Expense?

Paying for college involves more than just tuition—students also face costs like housing, books, and health insurance. Many families rely on tax benefits to ease the burden, but not all expenses qualify. Understanding whether student health insurance counts as a qualified education expense can help avoid tax issues.

IRS Definition of Qualified Expenses

The IRS defines qualified education expenses as costs necessary for enrollment or attendance at an eligible institution. These typically include tuition, mandatory fees, and course-related expenses required for a degree or certification program. To qualify for tax credits like the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), an expense must be directly tied to academic instruction.

Tuition is the most straightforward example, but required books and supplies can also qualify. If a professor mandates a textbook, it is considered a qualified expense, whereas optional study guides are not.

Room and board, transportation, and personal expenses generally do not qualify, even if they are necessary for attending school. The IRS also excludes expenses paid with tax-free funds, such as scholarships or grants, from being claimed for a tax credit or deduction.

Where Health Insurance Stands in Comparison to Tuition and Fees

Health insurance, even when required by a college, is not a qualified education expense for tax purposes. The IRS does not classify insurance premiums as directly related to academic instruction, meaning they do not qualify for education tax credits.

Even when a university includes health insurance costs in the total bill, this does not change how the IRS categorizes the expense. Schools often bundle various charges, but only specific costs meet the criteria for tax benefits. A billing statement may list insurance alongside tuition, but these amounts must be separated for tax reporting.

Some assume that because health insurance is a school-related cost, it should be deductible or credit-eligible, but tax law does not support this. The IRS focuses on expenses directly tied to coursework and degree completion. Insurance, while important for a student’s well-being, is considered a personal expense, similar to housing and transportation. Even if a school mandates coverage, this does not override the IRS’s classification.

1098-T Reporting for Insurance Costs

Many students and parents rely on Form 1098-T to determine education-related tax benefits, but not all charges on a student’s account appear on this document. Universities issue the 1098-T to report qualified tuition and related expenses (QTRE) under IRS regulations, but health insurance premiums are generally omitted. Schools follow IRS guidelines outlined in Treasury Regulation 1.25A-2(d), which specify that only expenses directly tied to academic enrollment should be reported. Since insurance is categorized as a personal expense, it does not appear in Box 1 of the form, which details payments received for qualified education expenses.

This can cause confusion for families who see health insurance listed on tuition bills but not on the 1098-T. Some assume an error has occurred, but institutions must exclude non-qualified expenses from the reported amounts. Even if a student pays insurance premiums directly to the university, the IRS does not recognize these payments as eligible for education-related tax benefits. Schools must comply with IRS reporting standards, and including non-qualified expenses on the 1098-T could result in misstatements that affect both taxpayers and the institution.

Tax Credits and Deductions Impact

Education-related tax benefits can reduce college costs, but eligibility depends on how the IRS classifies each expense. The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) allow taxpayers to claim qualified education expenses, but each has specific rules regarding what can be included.

The AOTC permits a maximum annual credit of $2,500 per eligible student, with 40% refundable, meaning up to $1,000 can be received as a refund even if no tax is owed. However, it only applies to the first four years of postsecondary education and requires at least half-time enrollment.

The LLC, by contrast, has no limit on the number of years it can be claimed but is non-refundable and provides a 20% credit on up to $10,000 of qualified expenses per return.

The Tuition and Fees Deduction, which allowed taxpayers to reduce taxable income by up to $4,000, was repealed after 2020. However, the Student Loan Interest Deduction remains available, allowing up to $2,500 of interest paid on qualified student loans to be deducted. This is particularly relevant for graduates managing repayment, as it provides a direct reduction in taxable income rather than a credit against tax liability.

Verifying Health Insurance Eligibility

Determining whether a student’s health insurance qualifies for any tax benefits depends on how the coverage is obtained and paid for. While insurance premiums are not considered qualified education expenses for tax credits, they may be deductible under different provisions of the tax code.

Employer-sponsored health insurance plans often allow parents to keep dependents on their policy until age 26, which can be a cost-effective option. If a student is covered under a parent’s plan and the premiums are paid with pre-tax dollars through an employer-sponsored cafeteria plan, they are not deductible. However, if the premiums are paid with after-tax income, they may be included as part of medical expenses when itemizing deductions on Schedule A (Form 1040). The IRS permits deductions for unreimbursed medical expenses that exceed 7.5% of adjusted gross income (AGI), meaning families with high medical costs may benefit from including student health insurance in their total deductible amount.

For students purchasing insurance independently or through a university plan, eligibility for tax benefits depends on how the premiums are paid. If a student buys coverage through the Health Insurance Marketplace, they may qualify for the Premium Tax Credit (PTC), which helps offset the cost of premiums based on income level. This credit is available to individuals who do not have access to affordable employer-sponsored insurance and meet specific income thresholds. However, if the policy is obtained through a school and paid directly to the university, it does not qualify for the PTC, nor does it count as a deductible medical expense unless the student itemizes and meets the AGI threshold.