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Claiming Health Insurance On Taxes – In fact, recent figures from the U.S. Bureau of Labor Statistics revealed that the average U.S. household spent more than $4,600 on healthcare in 2016. More than $3,000 of that went to health insurance.
Considering that’s about 10 percent of the average American’s household expenses, it makes sense that many of us would want to get some of that money back at tax time.
Claiming Health Insurance On Taxes
The good news here is that some health insurance costs are tax deductible. As for the bad news: Not everyone can benefit from these damages.
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This article covers when you can and can’t deduct taxes for your health care expenses and how you can do that.
First, let’s look at when you can write off some of your health insurance expenses as a tax deduction.
In general, if you want to reduce health insurance costs on your next return, you need to fall into one of the following groups:
For example, you can’t deduct all of the after-tax money you spend on health insurance from your income at tax time. You must also meet other criteria to benefit from this discount. This is true whether it’s the money you spend on an employer-sponsored health plan or Medicare.
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The government also forces you to jump through a few hoops if you want to write off insurance costs when you become self-employed.
If you find the above confusing, don’t worry. We’ll explain it all in more detail in the next few sections.
Want to wipe out all the after-tax money you spent on health insurance last year? Here’s what you need to do to make it happen.
For starters, your overall medical expenses for the year must be higher than a certain percentage of your adjusted gross income (AGI). While this rate was 7.5 for 2018, this rate is 10 for 2019.
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Well what does it mean? For the 2018 tax year, this means you can deduct medical expenses that, when combined, amount to more than 7.5 percent of your AGI. In 2019, this amount must exceed 10 percent of your AGI.
We’ll get into what your ROI is and how you calculate it later. But for now, just know that your AGI is your total income for a year, minus “adjustments.”
But you can’t deduct all the after-tax money you spend on health insurance premiums, co-pays, and the like. You can only deduct the amount that exceeds 7.5 or 10 percent of your AGI (depending on the year).
To give this example real-life relevance, imagine your AGI is $60,000. Now imagine your qualified medical expenses (learn more about qualified medical expenses in the “Other Frequently Asked Questions” section below) are $7,500.
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You can deduct $3,000 of these expenses when you go to prepare your tax return for 2018. That’s because you can only deduct the amount above 7.5 percent of your AGI this year. Multiplying $60,000 by 0.075 (7.5 percent) gives you $4,500. Subtracting $4,500 from $7,500 (your total qualified medical expenses) gives you $3,000. This is the number you use when preparing your healthcare expenses for the year. tax refund.
The thing is, you need to itemize your medical expenses to claim this deduction. And when you claim this deduction, you don’t get the standard deduction either.
This is a big deal because the standard deduction (currently $12,000 for individuals and $24,000 for joint filers) may well be higher than this medical expense deduction. If that’s the case, of course you want to use the deduction that will save you the most money.
In other words, don’t assume your overall medical expenses are high enough to be worth this deduction. Run the numbers and compare how much you’ll save if you itemize your medical expenses with the amount you’ll save with the standard deduction before you file your return.
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If you use Medicare, you can follow the steps shared above to delete your premium payments during tax season.
Note: Most Americans do not pay premiums for Medicare Part A. If you or your spouse have paid Medicare taxes for a certain period of time while working, you get this coverage at no cost. If neither you nor your spouse have paid into the system long enough, you must purchase Part A. In 2018, this requires monthly payments of up to $422. (Though they can be as small as $232.)
If you pay Medicare Part A, your monthly premiums count as qualified medical expenses. This means you can claim them as a tax deduction if you itemize your return.
Anyone enrolled in Medicare Part B must pay a monthly premium for it. The standard premium amount in 2018 is $134, but some Americans pay less than that.
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As with Part A, you can write off Part B premiums if you itemize your medical expenses when you file your taxes.
The IRS also considers premiums you pay for qualified medical expenses that fall under Part C, Part D, or MedSup coverage. You know what this means: If you itemize your return, you can claim them as a tax deduction.
Now be honest: You’ve read before that self-employed people can deduct health insurance payments on their tax returns, and you’re excited, right?
Well, get ready to get even more excited. From where? It is much easier to take advantage of these damages when you are self-employed than it is to do so in the other situations we have discussed.
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The main reason for this is that you don’t need to itemize your deductions when you’re self-employed. You also don’t have to worry about your medical expenses reaching a certain percentage of your AGI.
Instead, the cuts we’re talking about here are of the “above the line” variety. That’s a fancy way of saying you can enter these as standard deductions on the first page of your 1040 form.
Before you spend too much energy jumping for joy, know this: You still have to jump through a few hoops to take advantage of this discount.
You must make a profit. According to Nolo.com, if you’re not making money, you can’t write off your health insurance premiums this way.
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Your deduction cannot exceed the amount you earned while self-employed. In other words, you can only deduct as much as you earned in that year.
This deduction only covers health insurance premiums you paid while you were self-employed. It also does not cover other medical expenses.
Now that you understand when you can claim health insurance expenses as a tax deduction, what happens when you can’t claim them?
Do you get health insurance through an employer or through your spouse’s employer? So, does this employer pay all or part of your plan’s premiums? If so, you can’t delete that amount, according to TurboTax experts.
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However, if your employer only covers part of your health plan’s premiums, you can deduct the amount you paid them from your next return.
Does your employer take money from your paycheck to pay some or all of your health insurance premiums? So, is this amount deducted from your salary before your income taxes are calculated? If so, this means you’ll pay your premiums using pre-tax dollars. This is a no-no if you want to deduct these costs on your next tax return.
Why don’t you just delete these payments? Your employer takes money from your paycheck to pay for your health plan to give you some tax deduction. If you claimed this amount again when preparing your annual return, you would have double-dived. Unsurprisingly, Uncle Sam isn’t a big fan of this sort of thing.
3. You used a premium tax credit or cost-sharing subsidy when you purchased health insurance through the Affordable Care Act marketplace.
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Premium tax credits and cost-sharing subsidies for marketplace plans help many Americans pay for health insurance. The tax credit does this by lowering monthly premiums. The subsidy does this by reducing deductibles, co-payments, and co-insurance costs associated with these policies.
As you might expect, you can’t write off tax credit or subsidy amounts come tax time. However, you can write down the amount you paid out of pocket for your premiums and the remaining amount.
If you are self-employed, you don’t have to worry about this. If not, you must itemize health insurance and medical expenses on your tax return.
You’re only eligible for this if your overall medical expenses (including dental bills) are more than 7.5 or 10 percent of your AGI, depending on the year.
When Can You Claim A Tax Deduction For Health Insurance?
A: Your adjusted gross income, or AGI, is your total (or “gross”) income for a year, minus certain deductions.
If you are preparing your own tax return, Form 1040 specifies what accommodations you can and cannot use in this case.
Note: The government limits many of these deductions or deductions in various ways. For example, it currently limits student loan interest payments to $2,500.
As for how to calculate your taxable income, subtract any exemptions and deductions you qualify for from your AGI.
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Q: What does “item your deductions” mean? How can I detail my health insurance or general health insurance?
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