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Are Health Insurance Premiums Tax-Deductible?

Some people are unaware of all the tax deductions available to them, and might be missing out on great tax-savings opportunities. Remember, the more you can deduct, the better your income tax refund check will be. Medical bills can add up to a lot of money spent throughout the year, and are often overlooked as a tax deduction. But are health insurance premiums tax deductible? It depends on if you meet certain qualifications.

Employer’s Insurance

When you have a health insurance plan through an employer, your premiums are most likely already tax-free. In other words, you will not be able to write off your health insurance premiums.

caucasian man sitting in front of a lptop with money going into a suitcase on the screen, — *Most self-employed individuals can take a deduction for health insurance premiums.*

Self-Employed Insurance

Most self-employed individuals can take a deduction for health insurance premiums they pay for themselves and their dependents. So, if you own your own business, you can deduct the entirety of your premium payments. You can only do so as long as you are not eligible to get insurance from another employer’s plan.

The deduction for self-employed people is limited by the amount of your business income. You cannot deduct more than the amount of income your company makes.

figure sitting on top of "10%" sign — *You are allowed to deduct any unreimbursed healthcare expenses you paid for yourself or your family, as long as it is 10% your adjusted income.*

Self-employed people can deduct health insurance premiums directly on Form 1040 (Line 29 on returns). You deduct all other qualified medical expenses on Schedule A, Line 1.

The 10% Rule Of Medical Deductions

Whether you are on an employer’s insurance or your own, you can itemize medical expenses when you are doing your taxes, but there are some rules. The main rule is the 10% rule. If you paid for insurance on your own using after-tax dollars, then you can deduct some of your premiums paid. You are allowed to deduct any unreimbursed healthcare expenses you paid for yourself or your family. However, you can only do this if it is greater than 10% of your adjusted gross income.

So, you can deduct premiums paid, and out-of-pocket costs such as doctor visits, deductibles, surgeries, and dental and vision care. If your income for the year was $40,000, then you can deduct qualified expenses that exceed $4,000 (10% of your income). If your medical expenses were, for example, $7,000, then you can deduct $3,000 from your taxable income.

To reiterate, generally if you have your employer’s insurance plan, then you are paying for premiums tax-free already. This means that you cannot deduct health insurance premiums. But, you are eligible to deduct them if your total healthcare costs go over 10% of your adjusted gross income, or if you are self-employed.

Do You Qualify For The Small Business Health Care Tax Credit?

If you offer health insurance to your employees, it can be costly, but luckily there is a silver lining- the small business health care tax credit! One of the provisions of the Affordable Care Act, ACA, is the Small Employer Health Care Tax Credit which allows certain businesses to save money while offering health insurance to their employees. While it is a great financial saver for businesses, not all businesses can get the tax credit. There are some qualifications that a small business must meet in order to get the health care tax credit.

a list with 3 checkmarks and a pencil next to it insude a blue circle. — *You must meet certain qualifications in order to receive a tax credit.*

The Small Business Health Care Tax Credit

This credit allows small businesses to receive a tax credit for paying at least half of their employees health insurance premiums. In the beginning, the small business health care tax credit was not much, ranging only 35% of eligible health insurance premiums. But luckily, over the years it has changed. The tax credit now equates to up to 50% of employer-paid health insurance premiums.

cartoon figure sitting on top of "50%" numbers — *The tax credit now equates to up to 50% of employer-paid health insurance premiums.*

Small business owners cannot take the tax credit for insurance premiums paid on their own behalf. This includes partnerships, and sole proprietors.

Qualifications

In order to qualify for the health care tax, a business must meet the following criteria:

Have fewer than 25 full-time employees.
Your average employee salary must be less than $54,000 as of the 2019 tax year.
You pay at least 50% of your full-time employees health insurance premiums, also known as a “qualifying arrangement.”

Flexible Credit

An advantage of having this kind of credit is that it is flexible. It can be carried toward the next year, or back to other tax years. So, if your business does not owe tax in a certain year, then claiming the tax credit will not do you any good. However, if you owe tax for a prior year, you can apply your credit to that. Or you can choose to keep the tax credit and save it for next year.

Claiming the Tax Credit

The health care tax credit can be calculated and claimed using the Form 8941. The form must be attached to the business’s tax return, and then after it is processed, the credit reduces any income tax the business owes.

Tax-exempt organizations should file Form 990-T. This tax credit is non-refundable, although it can be carried towards either the following or prior tax years. Also, tax-exempt organizations that have no taxable income can qualify for a refund of the credit, as long as it doesn’t exceed their Medicare tax liability and income tax withholding.

calculator and pen on top of a sheet with numbers on it. — *If your business does not qualify for the tax credit, there is still hope on saving money with tax deductions.*

Small Business Tax Deductions

If your business does not qualify for the tax credit, there is still hope on saving money. There is a deduction for employee premium payments. Some businesses may be able to get both the deductions and tax credit!

The small business health care tax can help a small business offer their employees health insurance without fearing the great costs. As long as you meet the qualifications to receive the tax credit, then you will be eligible. The fewer employees you have, for example, less than 10 full-time employees who are paid an average of $25.000 or less will get you a bigger credit. And if you do not qualify for the tax credit, at least you can get deductions!

If you are looking to provide health insurance to your employees and want to save money, EZ.Insure can help. We will find a plan that meets your needs financially. We will find the plan that gives you deductions and notify you on whether you qualify for both deductions and the tax credit. Our goal is to save you as much money, while providing you with the best plan. Call 888-350-1890, or email us at [email protected] to speak directly with one of our agents, or enter your zip code in the bar above to get free instant quotes. We will never sell your information to telemarketers as others do.

Congress Considering Bill To Eliminate Gaps In Coverage

If you are turning 65 soon you might be looking for information on your Medicare eligibility, and what exactly having Medicare means. Medicare provides insurance to seniors under plans known as Parts A and B. Part A is hospital insurance, and Part B is medical insurance. While Part A is free, Part B is only covered up to 80% by Medicare, leaving you to pay for the other 20%. Unfortunately, some people are unaware that they must sign up for Part B within a certain timeframe, and can face a Medicare penalty.

white bell insude of a blue circle. — *In order for Medicare beneficiaries to avoid a penalty, Congress will begin notifying them to sign up before they turn 65.*

Currently Medicare does not notify you when it is time to sign up and it is up to you to be aware of the standard enrollment periods. If you do not sign up for Medicare Part B within the specified enrollment period, then you will face a life-long penalty. Luckily, in order to help people avoid this penalty, Congress is considering making revisions to a bill called the BENES Act.

The Medicare Penalty

Medicare Part A normally kicks in when you turn 65 on its own, there is no action required from you. You can enroll in Part B three months before you turn 65, the month you turn 65, and three months after the month you turn 65. While it is mandatory to enroll into Medicare Part A when you turn 65, you do have the option to opt out and put off your enrollment into Part B. Generally this will cause a penalty to be applied to your future Medicare rates unless you qualify for a special enrollment period.

The qualifications for a special enrollment period are:

You have coverage by a group health plan through you or your spouse’s current employment.
During the 8 months following the month your group health plan coverage ends, or when the employment ends (whichever is first).

If you do not qualify for a special enrollment period, then you will only be able to join during The General Enrollment Period, or GEP.

The GEP, which falls between January 1 and March 31 of every year, is the period of time when you can enroll in Medicare Part B for the first time. Coverage will then begin the following July. However, if you skipped the initial enrollment period when you turned 65 and waited for a GEP, you will be at risk of facing a penalty.

dollar bills piled on top of each other. — *If you miss the opportunity to sign up for Part B when you are eligible, you will face a 20% penalty for every year you did not sign up.*

When you do decide to finally sign up for Medicare Part B, you will then have to pay an additional 10% on top of your monthly premiums. For every full 12-month period (calendar year) that you were eligible for Part B, but did not enroll in it, you will pay a 10% penalty for as long as you have Part B. For example, if you opt out of signing up for Part B benefits for two years, then you will face a 20% penalty fee added onto your monthly Part B premiums forever.

The Problem

Unfortunately, some seniors mistakenly assume they can skip Part B because they have a former employer’s insurance through the ACA, or for other reasons. This leads to the beneficiaries facing a monthly Part B penalty for the rest of their lives. According to research, in 2018, about 760,000 people were paying a late penalty onto their monthly Part B premium, increasing their costs an average of nearly 30%. Congress thankfully is stepping in to try and end the Medicare penalty by notifying the beneficiaries before they turn 65.

Congress’ Approach

Congress hopes to revise the Beneficiary Enrollment Notification and Eligibility Simplification (BENES) Act, so that Medicare & Medicaid Services are required to notify people before their 65th birthday about their Medicare eligibility. Currently, the government only contacts people who are receiving Social Security benefits to notify them when it is time to sign up for Medicare.

The hope is that this would lead to beneficiaries avoiding the Part B penalty when they do not sign up for 12 or more months after they become eligible.

If passed, the revision would be the first one in five decades. This would move the GEP (January through March) window to the fall, which would coincide with the enrollment period for drug coverage and Medicare Advantage. It would also do away with the July effective date, and move it to January.

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Are Health Insurance Premiums Tax-Deductible?