Are Individual Health Insurance Premiums Tax Deductible?

Health care insurance premiums are a major expense for many people and the costs keep going up year after year. In some cases, you might be able to save at least some of that expense by taking a deduction for the money you spend on health insurance premiums and other medical costs.

Self-Employed

• If you are self-employed, you can take a tax deduction for the health insurance premiums you pay. You can only take this deduction, however, if you did not have access to a group health insurance plan. If you had access to a group plan for part of the year, you can only take the deduction for the months when the group plan was not available. That means if you lost your job in June, you can take a tax deduction for the health care premiums you paid from July through December, but not for any insurance premiums paid from January through June.

Health Savings Accounts

• When you shop for health insurance on the individual market, you might be able to save a great deal of money by purchasing a catastrophic coverage plan instead of a more comprehensive one. These plans are often referred to as high deductible health plans, and you can couple those plans with a health savings account and use that account to reduce your taxes. For 2011, you can contribute up to $3,050 to an individual HSA, or $6,150 to an HSA that covers your entire family. You can then take a deduction for that HSA contribution when you do your taxes.

Itemized Deductions

• If you itemize your deductions using Schedule A, you can take a deduction for your medical and dental expenses, providing that the total of those expenses are equal to at least 7.5 percent of your adjusted gross income. These medical expenses can include the cost of a premiums for an individual health care plan. You cannot, however, take a deduction for any medical or health care expenses reimbursed by other individuals or businesses. You should always compare the total of your itemized deductions with the standard deduction provided by the IRS. If the standard deduction is higher than the total of your itemized deduction, you cannot save by itemizing, and therefore the deduction for your health care premiums will do you no good.

Tax Planning

• If you are in the market for an individual health insurance policy, it is helpful to include some preliminary tax planning in the decision making process. If you have access to a tax preparation software, you can use that software to run different scenarios with different combinations of health insurance premiums and health savings account contributions. You can also use your tax preparation software to determine whether itemizing your deductions and taking a write-off for medical expenses and group health care premiums can save you money.