Are my out-of-pocket health insurance premium costs tax deductible? (Employees)

Yes, with a few caveats.

Under IRS rules, health insurance premium costs are qualified medical expenses. This means that they are tax deductible, but certain requirements must be met to claim the expenses on your tax return.

We’ll provide the details here. (Note: Most people aren’t able to meet the requirements and so most people don’t deduct their premium costs.)

  • You must be able to itemize your deductions on your tax return, and you can only itemize your insurance premium costs and qualified medical expenses if they exceed 7.5% of your gross income for the year.
    • To determine whether you should itemize your deductions or take the standard deduction, you’ll want to compare the two amounts and determine which is more beneficial for you. A tax advisor can help you with this.

  • In general, you can’t deduct any premium costs or qualified medical expenses that were reimbursed to you. This means that:
    • You cannot deduct any premium reimbursements you received from your employer through your StretchDollar health benefits plan or any other health reimbursement arrangement (HRA).
      • For example, if your annual premium costs are $6,000 and your employer reimburses you $3,000 of that through your StretchDollar benefits plan, you can only deduct the remaining $3,000 you actually paid out-of-pocket (and only if that amount + any other itemized qualified medical expenses you claim exceeds 7.5% of your gross income).

    • You cannot deduct any premium tax credits or subsidies you may receive from the federal government.

    • You cannot deduct any expenses that were reimbursed to you from your insurance company.
      • For example, let’s say you want to itemize your out-of-pocket costs for a surgery. If your Explanation of Benefits statement (EOB) from your insurance company shows that your insurance company paid $800 to the facility/provider and you were responsible for $200, you can only deduct the $200 you paid for the surgery.

We recommend that you speak with your tax professional about any tax questions you have. They can help you determine whether you should take the itemized deduction or a standard deduction, and can assist you with determining which expenses are eligible for deduction.

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