The health insurance premiums you pay out-of-pocket for policies covering medical care are tax deductible. This reduces your adjusted gross income (AGI), which lowers your tax bill. You can also deduct medical and dental expenses as itemized deductions on Schedule A of IRS Form 1040. And, of course, you should keep track of your medical expenses throughout the year so you can sort it all out at tax time.
If you have a pre-existing medical condition or expect to incur significant health expenses in the coming year, you may want to select a plan that offers more comprehensive coverage. Premiums can be thought of as the maintenance fee for a health care policy, not including other payments consumers have to pay, such as deductibles, co-payments and other out-of-pocket expenses. For example, with a little paperwork on the part of the employer, an employee can contribute to the cost of pre-tax health insurance, reducing the amount of the employee's taxable income and increasing his or her take-home pay. In the case of the self-employed, it may be in their interest to choose their most profitable business as a plan sponsor to increase their potential tax deduction amount.
With the rising cost of health insurance, a tax deduction can help you pay at least part of the premium cost. The deductibility of the cost of health insurance on your tax return depends on several factors. This contrasts with the two scenarios described above: the self-employed health insurance premium deduction and the health savings account deduction, which can be used regardless of whether deductions are itemised. Since double deduction is not allowed, you cannot deduct health insurance premiums on your tax return if they have already been paid with pre-tax money during the year (i.e.
deducted from your paycheck before calculating withholding taxes). A long list of health-related expenses can be included in your total medical expenses, including prescription drugs and optional surgical procedures, such as laser eye surgery to correct vision. The company must have a "written plan that stipulates that the company will provide health coverage by reimbursing its employees for all or part of the medical expenses or the cost of coverage purchased directly by the employees". So, if you are enrolled in an HDHP through your employer and you are making contributions to your HSA through payroll deduction (which is how this works for most people), you probably won't take deductions for either on your tax return, since the premiums and contributions will likely be subtracted from your paycheck on a pre-tax basis.
You'll want to listen to what the CPA has to say about retirement planning, insurance and estate strategies, among other things. For example, you can deduct the amount you have spent on your health insurance premiums if your total health care expenses exceed 7.5 percent of your adjusted gross income (AGI) or if you are self-employed. Under these rules, a taxpayer may rely on professional advice to avoid federal tax penalties only if that advice is reflected in a complete tax return that conforms to the strict requirements of federal law. Self-employed persons may deduct health insurance premiums they pay for themselves and their dependents directly on line 16 of the Schedule 1 form.