The open enrollment period for health insurance sold on the exchange is right around the corner. During this period, you can sign up for new coverage or change your current plan. Now is the time to begin your planning if you will be purchasing individual or family medical coverage.
The premiums for health insurance can be costly. Most families balance the cost of insurance coverage with the benefits provided in their plan. However, it is also essential to determine if you may deduct health insurance premiums, as the tax savings may allow you to purchase a more elaborate plan.
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Who Qualifies for the Deduction?
There are certain circumstances where taxpayers can deduct health insurance premiums. In general, the following situations qualify you for a deduction:
- You are self-employed: For self-employed individuals, you will likely be able to deduct the premiums paid for health insurance on behalf of yourself, your spouse, and your dependents. Dental and long-term care insurance are also deductible. The IRS does require you to have a net profit as filed on your Schedule C, Schedule C-EZ, or Schedule F.
- You are a partner: Partners in business with reported earnings on a Schedule K-1 may be able to take a premium deduction when filing their taxes.
- You own S-Corporation stock: If you are a shareholder of an S-Corporation with more than a two percent interest and report wages on a W-2 form, you may be able to take the deduction.
- You pay your premiums after-tax: Individuals and families paying insurance premiums out of their pocket may be eligible to claim a deduction. To qualify for the deduction, your medical and dental expenses must exceed 7.5% of your adjusted gross income.
- You use Medicare: The IRS allows deductions for premiums paid for Medicare. This includes all four parts, where each is treated as a medical expense for tax purposes. The deduction is not available to government employees who have paid Medicare tax or those covered by social security.
Other Available Deductions
If you do not qualify for a deduction of your health insurance premiums, your medical expenses may be eligible. Most costs are indeed deductible, including:
- Physician visits
- Dental treatments
- Medical equipment
- Eyeglasses and contact lenses
The entire list is much more comprehensive and can be found on the IRS website. However, to qualify, you must itemize deductions and deduct only those expenses exceeding 7.5% of your adjusted gross income. Determining the premium deduction eligibility of health insurance or whether itemizing makes sense is best answered by a tax professional.
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