Are Health Insurance Premiums Tax Deductible in 2023 and 2024? - GoodRx (2024)

Health insurance can be costly. A recent analysis of health insurance premiums shows that Americans will spend over $7,000 in 2024 if they purchase a private health plan through the Affordable Care Act (ACA) marketplace (also known as “Obamacare”).

Your health insurance premiums can be deductible on your federal taxes, depending on your total medical costs, employment status, whether you itemize deductions, and other factors. For example, self-employed individuals may be eligible to deduct up to 100% of their health insurance premiums they pay for themselves, spouses, eligible dependents, and children if certain requirements are met.

What factors determine if you can deduct health insurance premiums?

Whether you can deduct health insurance premiums on your taxes and the amount you are eligible to deduct will depend on several factors. Here are a few to consider:

• Type of insurance plan: Dental policies, Medicare, and health insurance policies purchased through the ACA marketplace may be eligible for a deduction if you pay for the premiums out of pocket. However, long-term care insurance is only deductible up to a certain annual limit based on your age.

• Employment status: If you are enrolled in an employer-sponsored health insurance plan, you can only deduct the portion of your premiums you pay out of pocket if you itemize deductions. But self-employed individuals may be eligible to deduct up to 100% of qualified premiums they pay even if they don’t itemize deductions. However, you cannot be covered under an employer-sponsored health plan if you want to claim the self-employed health insurance deduction.

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• Adjusted gross income (AGI): If you are not self-employed, you can only deduct medical expenses, including health insurance premiums, if you itemize deductions. Also, you can only deduct the portion of medical expenses that exceeds 7.5% of your AGI.

What premiums can you deduct if you are self-employed?

If you’re managing your own health insurance costs, you may be eligible to claim the self-employed health insurance deduction for the following premiums:

• Health insurance

• Dental policies

• Medicare (Parts A, B, C and D)

• Long-term care coverage, up to a certain annual limit based on age

You can claim the self-employed health insurance deduction even if you don’t itemize deductions. This is an “above-the-line” deduction. It reduces income before you calculate adjusted gross income. However, this deduction cannot reduce your Social Security and Medicare tax. You can report the self-employed deduction on Line 17 of Schedule 1 of your tax return.

You can deduct up to 100% of the premiums you pay for yourself, your spouse, dependents, and any non-dependent children under 27 if you meet the following requirements:

• Confirm coverage eligibility: You cannot be covered under an employer-sponsored health plan. For each month you are eligible for coverage from an employer healthcare plan, you cannot claim the self-employed health insurance deduction. This applies to your spouse, as well.

• Qualify as self-employed: If you are a limited partner receiving guaranteed payments, for example, you would be considered self-employed.

• Report a profit: Your business must report a net profit to qualify for the self-employed health insurance deduction. Your deduction cannot exceed profits earned during the year.

If you own more than one business, you can take the self-employed health insurance deduction for only one entity. You also want to use the business with the highest net income.

Each business can buy a different policy. For example, one business can purchase a policy for medical and the other for dental.

Can you deduct premiums for employer-sponsored health insurance?

Your contributions to an employer-sponsored health insurance plan are made with pretax dollars. This means that these contributions are deducted from your gross income before any taxes are applied. As a result, your taxable income is reduced by the amount you contribute. Because these contributions are already tax-advantaged, you cannot claim them as a separate deduction on your tax return.

But if you pay for your medical expenses, including health insurance premiums, out of pocket, you may be able to claim a deduction on your tax return if you choose to itemize.

Are COBRA premiums tax deductible?

Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to remain on your employer’s group policy when you lose your job. The coverage eligibility ranges from 18 to 36 months, and you typically have 60 days from the date of your “election notice” or from the date you lose coverage to enroll. The premiums can be expensive compared with what you paid for your employer-sponsored plan, because you are responsible for paying your original premiums plus the amount your employer previously paid on your behalf. There’s also a 2% administrative fee.

Since COBRA is part of an employer plan, you cannot take the self-employed health insurance deduction for the premiums. However, you may be eligible to claim COBRA premium payments as an itemized deduction when you file your tax return.

Are ACA marketplace insurance plans tax deductible?

If you purchased health insurance through the ACA marketplace, you may be able to deduct premiums that were not reimbursed or paid for on your behalf. That means you can’t deduct insurance premiums that were paid for with a premium tax credit, which helps lower your monthly insurance or reduce your tax bill at the end of the year.

Let’s say you purchased insurance through the ACA marketplace and qualify for premium tax credits. If your premium tax credits cover 60% of your premiums, you won’t be able to deduct that portion. But if you pay the remaining 40% out of pocket, you’ll be able to deduct that amount on your tax return. Additionally, you cannot take the self-employed health insurance deduction for the credit amount.

However, there is an exception if you have access to an employer-sponsored group health plan, which would include your spouse’s plan. If you choose not to purchase the insurance, you will not be allowed to claim a deduction for the ACA premiums.

Can you deduct Medicare premiums?

Yes. You can claim Medicare premiums on your taxes if you take the self-employed health insurance deduction or itemize deductions. You can deduct the following types of Medicare premiums if you have to pay for them every month:

• Medicare Part A (hospital insurance)

• Medicare Part B (medical insurance)

• Medicare Part C (Medicare Advantage)

• Medicare Part D (prescription medication coverage)

How do I itemize deductions on my tax return?

Before you complete your tax return, you will need to determine if you will claim the standard or itemized deduction. These deductions reduce the amount of money that is subject to taxes. You can claim the self-employed health insurance deduction regardless of which deduction you choose. But the rules are different if you want to deduct medical expenses or don’t qualify for the self-employed health insurance deduction. You will have to itemize deductions to claim health insurance premiums on your taxes.

Generally, it makes sense to claim the itemized deduction when your allowable expenses are greater than the standard deduction amount. Most people won’t claim the itemized deduction, because it comes with a high hurdle.

Source: IRS

If you itemize deductions, you can only deduct medical expenses that exceed 7.5% of your annual AGI.

For example: Suppose you report $70,000 in AGI and have $15,000 in medical expenses. First, multiply your AGI by 7.5% to calculate your medical expense threshold. Your threshold is $5,250. That means you can deduct medical expenses in excess of $5,250. Your total deduction is $9,750, or $15,000 minus $5,250. You will report this as an itemized deduction on Schedule A.

What health insurance premiums are not tax deductible?

If you are self-employed, you lose the health insurance deduction for each month you are:

• Eligible for your employer’s health plan

• Eligible for your spouse’s health plan

• Paying premiums for COBRA coverage

You also lose the deduction if your business is unprofitable for the year. This includes any subsidies from premium tax credits.

Generally, health insurance premiums may be tax deductible if you're not receiving a reimbursem*nt anywhere else. But if you are not self-employed, you can only deduct those premiums that exceed 7.5% of your AGI. You also cannot deduct the portion of your premiums for the following:

• The amount of insurance premiums paid on your behalf with premium tax credits

• Your employer’s payments for your premiums

• The amount your employer deducted from your paycheck pretax

• Social Security’s payments for your Medicare Part A premiums

The IRS also does not allow for deductions for the following premiums that you pay for:

• Life insurance policies

• Insurance policies offering compensation for loss of income

• Insurance covering losses such as life, limb, or sight

• Insurance policies that provide a fixed weekly sum for a predetermined number of weeks during hospitalization due to sickness or injury

• The portion of your auto insurance premium that covers medical insurance for everyone injured in or by your car, as the premium portion covering you, your spouse, and your dependents is not separately stated from the portion for medical care for others

• Health or long-term care insurance premiums, if they were paid with tax-free distributions from a retirement plan directly to the insurer, and these distributions would have otherwise been taxable income

Where can you get help claiming health insurance premiums on your taxes?

The tax laws are complicated and change periodically. It is a good idea to seek the advice of professionals. These include certified public accountants (CPAs) and enrolled agents (EAs). You can also find a qualified tax professional at this website.

The Internal Revenue Service (IRS) offers the volunteer income tax assistance (VITA) program. If you meet income requirements, you may be eligible to work with an IRS-certified tax professional for free.