Are Health Insurance Premiums Tax Exempt?

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If you can deduct your own premiums, you can deduct them for your dependents.
If you can deduct your own premiums, you can deduct them for your dependents. (Image: michaelquirk/iStock/Getty Images)

If you receive health insurance through your job, the share of the premiums your employer pays are usually exempt from consideration as taxable income. If you buy your own insurance, you may be able to write off the premiums. This can be an itemized deduction, a straight deduction or a tax credit, depending on your situation.

Employee Insurance

Fringe benefits are often taxable. If one of your benefits is employer-subsidized health insurance, that's an exception. The share of the premiums your employer pays isn't usually taxable to you, but some exceptions apply. For example, if you buy insurance through a cafeteria plan offering a choice of fringe benefits, your employer's contribution toward the premiums is taxable income. If that's the case, the amount will show up on your W-2 form at the end of the year.

Buying Your Own

Any money you spend on health insurance premiums yourself is tax deductible along with your other medical costs. That includes insurance coverage for drugs, hospitalization, doctor visits, dental and vision care. This write-off isn't an option if you take the standard deduction though; you have to itemize. To claim a medical-expense deduction, you subtract 10 percent of your adjusted gross income from your family's total qualifying expenses. You can only deduct what remains.

Self-Employed Insurance

If you're self-employed, you may be able to write off the entire cost of your premiums without itemizing. The Internal Revenue Service allows you to deduct the expense provided you meet at least one of several requirements, such as reporting a profit on Schedule C. You can't take the deduction, however, if you have the option to buy coverage through your day job or your spouse's job. Even if self-insurance is a better deal, you can't deduct it.

Health Insurance Tax Credit

If you can't find affordable workplace health insurance and you buy a policy through the Affordable Care Act's health-care marketplace instead, you may be eligible for a tax credit. The credit is available if your family's income is between 100 and 400 percent of the federal poverty level for a family of your size. There are other qualifications as well. You take the credit right off your taxes, rather than your income.

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