Keeping detailed medical records can help you determine if you have potential tax-saving expenses.
Taxes and health insurance are complex on their own. And the complexity is increased when you join them in questions like: “Are health insurance premiums tax deductible?” Here are six tax and health insurance considerations to help you keep the records you need to file each year.
1. Can I claim medical expenses?
Based on tax rules for 2021, the IRS “allows taxpayers to deduct total unreimbursed annual qualified health care expenses in excess of 7.5% of their Adjusted Gross Income” (AGI) . For example, let’s say your AGI is $50,000 and your medical expenses are $6,000. Since 7.5% of your AGI is $3,750, you can deduct $2,250.
2. What medical expenses qualify?
You can generally deduct many out-of-pocket medically necessary expenses, including preventive care, treatments, surgeries, prescription drugs, as well as medical, dental, and vision supplies. (The IRS provides an exhaustive list.) You can also deduct transportation costs to and from medical care.
3. How do I claim medical deductions?
You must itemize your medical deductions on the Form known as Schedule A (Form 1040 or 1040-SR) [Schedule A, Form 1040 or 1040-SR]. Generally, you should keep receipts for three years or more in case you become subject to audit.
4. Is health insurance tax deductible?
It’s possible. Generally, you can deduct them if you pay your health insurance premiums with after-tax dollars and your total medical expenses (including premiums) exceed 7.5% of your AGI. Most group health insurance plans are paid for with pre-tax dollars, but check with your employer to be sure. Generally, Medicare A premiums (if you voluntarily enrolled and if you don’t have social security coverage), as well as Medicare B and Medicare D premiums, are tax deductible. If certain criteria are met, self-employed individuals they can sometimes deduct your health insurance premiums, even if your expenses don’t exceed the 7.5% threshold
5. What expenses do not qualify for a tax deduction?
You can’t deduct expenses paid with funds from a Health Savings Account (HSA) or Flexible Spending Account (FSA). Typically, cosmetic surgeries, over-the-counter medications, gym memberships, and personal hygiene items are not considered tax deductible. See IRS Publication 502 for a complete list.
6. Should I take a standard deduction instead?
The standard deductions for 2021 are $12,550 for single taxpayers and $25,100 for married filing jointly. You should consider itemizing your deductions if your allowable itemized deductions are more than your standard deduction, or if you must itemize deductions because you can’t use the standard deduction.
What health insurance premium can I pay?
Consider the following when choosing a health plan:
- your current health
- Your average annual health care expenses
- Your annual income available for out-of-pocket medical expenses
Then adjust your previous annual health care expenses based on any changes in your current health. If you have available annual income to pay for possible out-of-pocket medical expenses, a plan with a low monthly premium might be the right choice.
Low-premium plans generally don’t offer coverage until you’ve paid out of pocket for a significant portion of your medical expenses. Other plans may have higher monthly premiums, but cover more of your medical expenses.
