You will not pay taxes on your employer’s contribution to your group health insurance. Your employer pays a monthly premium that is the cost of the actual policy. In turn, the employer deducts your portion of the contribution from your paycheck. Though your employer is able to deduct any premium it pays as a business expense, only rarely can individuals deduct the employee premium.
Deductible Medical Expenses
You can deduct medical (and dental) expenses in one scenario. Your unreimbursed medical expenses and the premiums you pay must be greater than 7.5 percent of your adjusted gross income. This includes any premiums paid for your coverage, your spouse and your dependents. You must itemize your tax deductions on Schedule A and can only include the expenses for the year that exceed the 7.5 percent of your adjusted gross income. You can also include the premiums paid for qualified long-term care insurance.
Taxes and Disability Policies
Many employers offer disability policies, including short-term disability and long-term disability. These policies are separate from your medical and dental coverage but fall under the health insurance umbrella. Depending on how contributions are set up, the employee may need to pay taxes on benefits received. When the employer pays the entire premium, the employer can use this as a business expense deduction, however, the disability benefits you receive from the policy are taxable and considered income. If you pay the entire premium, benefits paid are not taxable. Shared contributions mean you may have to pay taxes on benefits received but not on the premium.
Health Spending Accounts
If your employer offers a high-deductible health plan, they also may set up a health reimbursement account for you as well. HRAs allow the employer to reimburse an employee for health care expenses not reimbursed under the group health insurance plan. Employers often contribute money into their employee’s HRA. This employer contribution is not taxable to the employee. The reimbursement you receive for medical care also is not taxable; however if you take out HRA funds for reasons other than medical expenses, that amount is taxable.
The Consolidated Omnibus Budget Reconciliation Act provides continuation of health insurance coverage after loss of group health insurance, typically after losing or leaving a job. In 2009 and part of 2010, individuals electing COBRA may have gotten premium assistance from the federal government. Instead of paying 100 percent of the premium, you may have only paid 35 percent. For most individuals, the premium assistance is not considered part of your gross income, however, those with an adjusted gross income over $125,000 if filing individually, or $250,000 if filing jointly, will need to include a percentage of the premium assistance as income.