- Can you deduct health insurance costs on your taxes?
- Who can claim medical expenses on their taxes?
- Which health insurance expenses are tax-deductible?
- How to calculate your medical expense deduction
- Self employed health insurance deduction
- How to maximize your health care deductions
- What does maximize deductions mean?
- Frequently asked questions about health insurance deductions
Can you deduct health insurance costs on your taxes?
You can deduct eligible medical expenses and health insurance costs that exceed 7.5% of your adjusted gross income (AGI). That includes health insurance premiums.
Not all healthcare expenses are tax-deductible. For instance, you can’t deduct what your employer pays for your coverage. Another example is when your health plan covers a percentage of your health care services. You can only use what you paid for health care as deductions.
Let’s say you go to the doctor and receive $100 worth of health care services. If your health insurance plan covers 75% of that $100, you can’t deduct the full amount.
This means that you can only write off $25 as part of your costs because your insurance company is covering the rest,” said Jack Choros, content manager at Iron Monk Solutions.
Who can claim medical expenses on their taxes?
The Internal Revenue Service (IRS) has two critical eligibility rules for people who don’t own a business:
- A standard deduction is $12,950 for singles, $19,400 for heads of household and $25,900 for married filing jointly. If your tax-deductible health insurance costs don’t exceed those limits, it’s best to go with a standard deduction rather than itemize your health care deductions.
- Your health care costs must exceed 7.5% of your adjusted gross income. The AGI is what you earn in wages, investments and other sources minus things like alimony and student loan interest. You can find your adjusted gross income on line 37 of Form 1040.
So, the first question to answer is: How many eligible health care costs do you have? If your health care costs are less than the standard deduction amount, you should take the standard deduction instead.
Chris Peterson, tax manager at CB Smith & Associates, said most people take the standard deduction rather than itemize health care deductions because they don’t exceed the standard deduction level.
Which health insurance expenses are tax-deductible?
Not everything qualifies for a deduction. So what is a qualified medical expense? Common items you can deduct from taxes include:
- Medical appointments
- Surgeries
- Tests
- Prescription drugs
- Durable items like wheelchairs
- Prescription glasses
- Home care
- Guide dog or service animal
- Wigs for patients who lost their hair due to illness
You can also deduct transportation expenses for going to the doctor -- parking, tolls, mileage, cab or bus fares -- and even airfare and certain lodging costs for out-of-town treatments. (See IRS Publication 502 for a list.)
How much of health insurance is tax-deductible? Only out-of-pocket expenses -- copays, deductibles, etc. You can’t write off the portion of the bills that your health plan or employer paid if you have an employer-sponsored plan.
Alan Steeples, certified public accountant and tax services manager at In Concert Financial Group, said the key to whether something is eligible for tax deduction is if a medical professional prescribed or recommended it. That can even include whirlpools for severe arthritis and air purification systems for patients with asthma. On the flip side, over-the-counter medication and vitamins aren't usually eligible for deductions.
“Rule of thumb: If it’s not prescribed or recommended by a physician, you can’t write it off,” Steeples said.
How to calculate your medical expense deduction
Most people don’t accrue enough medical expenses to make health care deductions worth it.
However, if you do have enough medical expenses, here’s how calculating health care deductions work.
Let’s say you have an AGI of $100,000. So, 7.5% percent of the AGI is $7,500. Any qualifying medical and health care costs beyond that amount are tax deductible.
If you have $15,000 in qualified expenses, you can deduct $7,500 from your taxable income when you file your taxes if you don’t take the standard deduction.
If you have a health plan from the health insurance marketplace, sometimes known as Obamacare, you shouldn’t deduct money for premium tax credits. Those plans often have subsidies like tax credits that reduce the cost of Affordable Care Act plans. You shouldn’t include those subsidies in your deductions.
Self employed health insurance deduction
Most self-employed people can deduct health insurance premiums as an adjustment to their gross income.
There are two requirements to write off health insurance premiums as a self-employed person:
- You can’t have health insurance coverage elsewhere, such as through a spouse.
- You can only deduct up to your net income. If you don’t make any money or have a net loss, you can’t deduct anything. You can’t combine income from multiple businesses, either.
If you don’t deduct 100% of your health insurance premiums on Schedule 1 and you itemize your health insurance deductions, you can add the rest to your health insurance costs for the year on Schedule A. Bear in mind it will be subject to the 7.5% threshold.
Can you deduct health insurance premiums without itemizing?
Serrano says self-employed people with a net profit for the year can deduct medical and health expenses without itemizing expenses. He added that there's no need to itemize your deductions because it’s an adjustment to your income.
“These deductions reduce the business owner’s AGI dollar for dollar and can be significantly more advantageous than including their premiums in their itemized deductions,” Steeples said.
How to maximize your health care deductions
You can’t control when you need health care. However, you can bunch up procedures to maximize deductions.
Say you have a handful of nagging health issues. They’re not life-threatening, but they’re affecting your quality of life. You could decide one year to get all of those pesky problems fixed, reach the tax-deductible threshold, and apply for a deduction at tax time.
What does maximize deductions mean?
Maximizing your deductions means that you make the most of the opportunity to use the health care deduction. Once you have crossed the 7.5% threshold, all qualified expenses will start to add up. So, as noted above, if there’s a medical procedure or purchase you have been putting off, you might want to consider getting it taken care of in the current tax year, so that you can get the biggest deduction possible.
Make sure that you carefully document all of your expenses so that you don’t miss any when you add up your deduction.
Silver plans provide a good balance of monthly premiums with out-of-pocket costs. Coinsurance is 70% with a silver plan, meaning you will pay 30% of the costs after your deductible is met, up to the out-of-pocket limit. Silver plans are a good choice for people who are in generally good health but don't want high out-of-pocket costs if something goes wrong. Bronze plans are a popular choice with those who value low monthly premiums and are willing to pay more when they need care. Coinsurance is set at 60%, meaning you will pay 40% if you do need care, up to the out-of-pocket limit. Bronze plans are good for those who don't expect to need many services outside of preventative care throughout the year.
ACA platinum plans have the highest monthly premiums, but the lowest out-of-pocket costs. You'll pay more monthly in return for lower deductibles, copays and coinsurance amounts. Coinsurance with platinum plans is 90%, which means you pay 10% after the deductible, up to your out-of-pocket limit. Platinum plans are good for those who anticipate a lot of medical needs throughout the year.
Gold plans cost a little less than platinum plans, and come with higher out-of-pocket costs. The coinsurance amount on a gold plan is 80%, which means you pay 20% after the deductible, up to your out-of-pocket limit. A gold plan is a good idea if you think you'll need a lot of care throughout the year, but don't want to pay platinum premiums.Health insurance finder tool
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Employer-sponsored health insurance
Preferred-provider Organization (PPOs)
Preferred-provider organization (PPOs) plans are the most common type of
employer-based health plan. PPOs have higher premiums than HMOs and HDHPs, but
those added costs offer you flexibility. A PPO allows you to get care anywhere
and without primary care provider referrals. You may have to pay more to get
out-of-network care, but a PPO will pick up a portion of the costs.
Find out more about the differences between plansHealth maintenance organization (HMO)
Health maintenance organization (HMO) plans have lower premiums than PPOs.
However, HMOs have more restrictions. HMOs don't allow you to get care outside
of your provider network. If you get out-of-network care, you'll likely have to
pay for all of it. HMOs also require you to get primary care provider referrals
to see specialists.
Find out more about the differences between plansHigh-deductible health plans (HDHPs)
High-deductible health plans (HDHPs) have become more common as employers look
to reduce their health costs. HDHPs have lower premiums than PPOs and HMOs, but
much higher deductibles. A deductible is what you have to pay for health care
services before your health plan chips in money. Once you reach your deductible,
the health plan pays a portion and you pay your share, which is called
coinsurance.
Find out more about the differences between plansExclusive provider organization (EPO)
Exclusive provider organization (EPO) plans offer the flexibility of a PPO with
the restricted network found in an HMO. EPOs don't require that members get a
referral to see a specialist. In that way, it's similar to a PPO. However, an
EPO requires in-network care, which is like an HMO.
Find out more about the differences between plans
Learn more about individual insurance plans
Know more individual insurance / ACA 
Know more individual insurance / ACA 
Frequently asked questions about health insurance deductions
Is it worth claiming medical expenses on taxes?
It depends on how much you’ve spent on health care for the year.
The medical expenses need to exceed the standard deduction and comprise more than 7.5% of your AGI.
So, to file medical expenses, they would have to reach those levels to benefit from claiming medical expenses on your income tax.
Are Health Savings Account contributions tax deductible?
Similar to health insurance premiums, contributions to Health Savings Accounts aren't tax deductible if the money was pre-tax. If the money wasn't taxed, it's not eligible for a tax deduction because, at that point, you would benefit from not paying taxes twice.
Is supplemental insurance tax-deductible?
Yes. You can deduct premiums for supplemental health insurance policies like Medigap or dental insurance on your taxes.
