How to Lower Your Taxes and Keep Healthcare Expenses Affordable
Lauren Lewthwaite 27-05-2022

Are Health Insurance Premiums Tax Deductible? Here’s What You Need to Know

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It’s no secret that healthcare and insurance premiums are expensive. But not having health insurance isn’t an option for most, given the fact that a three-day hospital stay can cost you as much as $30,000. 

This has many Americans questioning, “are health insurance premiums tax deductible?”. We’ll dive into everything you need to know about healthcare and your taxes, so you can file with peace of mind. 

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Are Healthcare Insurance Premiums Tax Deductible?

The short answer is maybe. It depends on a few factors, but mainly whether or not your healthcare expenses for the year exceed 7.5% of your adjusted gross income. Your adjusted gross income (AGI) is the total of all of your sources of income, including your wages, capital gains, dividends, rental income, spousal support, and more, but minus deductions from your income like student loan interest payments, retirement plan contributions and more. 

Figuring out your AGI and then if your healthcare expenses exceed 7.5% of that will help you answer the question “are health insurance premiums tax deductible?” for your personal situation. 

When Can I Deduct Health Insurance Premiums on My Taxes?

Even if your healthcare premiums and expenses exceed 7.5% of your AGI, they’re not all tax deductible. Your main rule of thumb is that it must be paid out of pocket for it to potentially be tax-deductible; for example, healthcare premiums that are deducted from your pay pre-tax would not be tax deductible.

Health insurance premiums paid out of pocket for the following insurance types are tax deductible: 

  • Insurance purchased through COBRA
  • Medicare premiums for parts B and D (and part A, as long as you’re not enrolled in Medicare through Social Security or a former government employee that paid Medicare tax)
  • Insurance purchased through the federal or state marketplace

If a tax subsidy covers part of your premiums, then those portions can’t be considered tax deductible. The good news is, that you can deduct applicable insurance premiums from your taxes for yourself, your spouse, and your dependents. 

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Are Medical Expenses Tax Deductible?

Are health insurance premiums tax deductible? Yes. But is there any other way to lower your taxes? Also yes. Medical expenses that you pay out of pocket are also tax deductible, as long as they add up to more than 7.5% of your AGI. This means that as long as you spend enough on things like doctor visits, vision and dental care, hospital care, surgeries, chiropractors, psychiatrists, and more, you can deduct them from your taxes and save yourself some money.

It’s important to note that for both health insurance premiums and medical expenses, only the portion you paid that exceeds 7.5% of your AGI is tax deductible. For example, if your AGI is $75,000 and your expenses were $7,000, you could only claim $1,375 (the amount above the 7.5% threshold, which would be $5,625 in this case). 

Understanding Standard or Itemized Deductions

If you find that your health insurance premiums and medical expenses do exceed 7.5% of your AGI, you’ll then need to decide whether to file your deduction as standard or itemized. The standard deduction is a set amount (for example, $25,100, but if your itemized deductions exceed that amount, then you’ll want to itemize them.

Key Takeaways

So, are healthcare insurance premiums tax deductible? Yes, and so are eligible medical expenses, as long as you’ve spent more than 7.5% of your AGI. Filing for this tax deduction can net you serious savings each year and help keep your healthcare costs down. 

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Lauren LewthwaiteLauren Lewthwaite has been freelance writing for almost five years writing content that ranges from health to insurance and everything in between. Lauren is also a trained translator in French and English and is a dog-mom to an adorable Australian Shepherd.