How To Deduct Medical Insurance As An Itemized Deduction
Individuals who itemize deductions on their income tax return often maintain detailed records of their medical expenses. When the tax return is prepared, their records are reviewed to determine which expenses are deductible. In addition to the amounts paid to medical providers, the cost of certain types of medical insurance is also deductible as an itemized deduction.
Unlike most other itemized deductions, medical expenses are subject to a threshold at which they become deductible. Total medical expenses are deductible to the extent they exceed 10 percent of an entry on Form 1040 labeled as adjusted gross income. For tax filers age 65 or older, the medical threshold was 7.5 percent through the tax year 2016. Effective in 2017, the medical threshold for all filers is 10 percent.
Deductible medical insurance includes policies that cover a wide range of medical services. You can also deduct the cost of medical insurance for your spouse and any dependents. There are several types of deductible medical insurance, each available from a different source.
Employer-provided health plan
A key requirement in deducting the cost of medical insurance is that the expense must be paid with after-tax dollars. If your health plan is sponsored by your employer, you may have a salary reduction arrangement that pays your insurance on a pre-tax basis. If so, the benefit of not paying tax on the premium amount is likely greater than the itemized deduction not allowed.
If a portion of your insurance premium is included in your taxable income, that part is deductible. Instead of an employer-sponsored plan, you may have a private health insurance policy on your own. In that case, the out-of-pocket cost is deductible.
In accordance with the Affordable Care Act, many tax filers receive medical insurance through the Marketplace. When a policy is initiated, a premium advance is provided to your insurance company, based on projected income. If the income reported later on your tax return differs, you may have a balance due. If so, that out-of-pocket cost for medical insurance is deductible.
The costs of Medicare Part B and Part D are deductible, providing coverage for doctors and prescriptions. Most Medicare enrollees pay no charge for hospital coverage provided by Medicare Part A. However, the cost of Medicare Part A is deductible if you pay the premium yourself.
You may also deduct the cost of long-term care insurance. Some states have a lower threshold at which medical expenses can be deducted. For that reason, always total your medical deductions, even if it only benefits your state tax return. Contact an income tax preparation service for more advice on deductible medical expenses.