Individual Health Insurance Tax Benefits
The Internal Revenue Service allows individual taxpayers several options to deduct eligible health insurance costs. These medical insurance costs may include dental, mental health professionals, eye doctors, and chiropractors. Additionally, long-term care costs may be covered. Costs for drug and alcohol addiction treatments may also be covered, excluding tobacco-cessation expenses. Costs for vision correction, hearing correction and even guide dogs may be covered.
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Self-Employment Insurance Benefits
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Self-employed individuals may deduct medical and dental insurance expenses if the taxpayer produces an annual net profit. The IRS limits the deduction to the amount of net profit for that year.
This deduction is an adjustment to net income, and individuals may claim insurance costs they provide on their families' behalf. However, the deduction doesn't apply for a month the employee could have participated in any health plan offered by an employer or spouse's employer. As such, if self-employed and employed by an employer who provides health insurance, then the months the employee could have been covered don't count. If this is the case, then semi self-employed taxpayers may use the 7.5-percent adjusted gross income (AGI) deduction for the remaining premiums that aren't deductible.
Non Self-Employment Insurance Benefits
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Taxpayers who aren't self-employed can deduct medical insurance costs only if itemizing their returns. If itemizing, individuals can deduct the amount over 7.5 percent of their AGI. In other words, the itemized deduction would only apply to the amount exceeding the 7.5 percent floor of the adjusted gross income. This amount is calculated on Form 1040, Schedule A. It includes medical, dental and vision expenses for the individual and eligible dependents. Only direct medical expenses and prescription drugs are covered, including incidental expenses such as certain meals and transportation; alternative forms of therapies or elective procedures may not be covered.
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HCTC Benefits
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The federal government allows eligible taxpayers a credit for health care premiums. Known as the Health Coverage Tax Credit (HCTC), this benefit provides Trade Adjustment Assistance, Alternative Trade Adjustment Assistance (ATAA), Reemployment Trade Adjustment Assistance (RTAA) and Pension Benefit Guaranty Corporation (PBGC) recipients with benefits allowing them to pay only 20 percent of the premium amounts for health insurance for themselves and eligible dependents. Typically, these benefits apply to taxpayers age 55 and older who are not Medicare recipients.
Since tax laws change frequently, seek competent advice from an accountant or state-specific licensed attorney.
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