Can You Write Off Medical Insurance?
The money you pay for your health insurance can be substantial. The good news is it also can be the source for a large tax deduction. However, if you aren't self-employed, the amount is part of your schedule A, itemized deductions, and you won't reap the full benefit. If you pay your premium with a 125 plan, one that pays for your plan with pre-tax dollars, you can't deduct the medical insurance premium.
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Itemized Deductions
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You can deduct your medical insurance but you have to itemize your deductions in order to do that. The first section of Schedule A is medical expense. Add your medical insurance premiums to other expenses not reimbursed by insurance, such as plans to help you stop smoking including nicotine gum, dental expenses not covered, eyeglasses, prescription drugs and weight control programs, in addition to other listed items. You then multiply your adjusted gross income by 7.5 percent and subtract that from your total medical expense. The amount left is what you list on schedule A. If it's less than zero, you can't take a deduction.
Cafeteria Plans
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Section 125, cafeteria plans, offers you the ability to pay for your health insurance and other benefits with pretax dollars. In essence, tax-deducting the premiums also does the same thing, since you remove the premium amount from your after-tax income. Some people feel cheated when they begin their taxes and find 125 payments aren't deductible. However, it's actually a bigger benefit than writing off the amount of health insurance you pay. With the Section 125 plans, you have the benefit of never including that money in your taxable income and don't have to itemize to reap the tax benefit. Since you subtract 7.5 percent of your medical expenses on the standard deduction form, 125 plans help you avoid that deduction loss also.
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Self-Employed Medical Insurance
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Since employers get to deduct the health insurance paid for employees, it's only fair that the self-employed also get that benefit. You take the premium off the 2010 tax Form 1040 on Line 29, before you calculate your adjusted gross income. However, you only get to deduct half the premium there. The second half comes off the itemized deductions, just as it does for everyone else.
Long-Term Care Insurance and HSAs
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Both health savings accounts (HSA) and long-term care insurance are deductible. Health savings accounts follow the same rules as traditional medical insurance. Just like traditional medical insurance, if you didn't contribute to the health savings account but it was money from your employer, you can't deduct it. Long-term care insurance premiums have limits on the amount you can deduct from Schedule A. If you're 40 or under, the deductible amount is $330. For people 41 to 50, the deduction increases to $620. At 51 to 60, you get to deduct $1,230 and it increases to $3,290 from 61 to 70. After the age of 70, the most you can add to your medical deductions is $4,110.
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