YOU ASK:

Can you deduct health insurance premiums on income tax?

WE ANSWER:

Yes, health insurance premiums can be deducted from income tax. But how it does this depends on what kind of insurance you have. The IRS treats your health insurance premiums differently depending on what kind of plan you are on, as well as your employment status.

You can avail of a health insurance tax deduction which allows you to deduct qualified amounts for premiums, deductibles and other out-of-pocket expenses. These deductions are allowed for expenses paid out-of-pocket.

  • Persons who are employed. Only your share of the premiums is tax deductible. The premiums paid by your employer are not deductible. Also, if your employer provides you with a top-end plan (also called a "Cadillac" plan, instead of deductions, what you will have to pay will be higher taxes for your premiums.
  • Persons with HSAs. If you are enrolled in a Health Savings Account, then your contributions to your HSA for a certain year is exempted from taxes up to $2,500 but this will change through the years. The amounts you are contributing to your HSA will not be included in the computations of your taxes.
  • Persons who are self-employed. Your premiums (as well as for those of your family) are tax-deductible up to a certain point. However, if your spouse or your dependents have insurance with their employers, then the premiums you pay for them are not tax-deductible.
  • Persons who have individual plans. If you have a policy that is not provided by your employer or if you are not self-employed, you can deduct up to 7.5% of your gross income for insurance premiums as well as other health care expenses. (Here's a tip: keep careful records of these expenses so you can substantiate these come tax-reporting time.)
  • Persons who have low income. Those who are under the low income bracket may be eligible for tax exemption - that is, if the cheapest health insurance plan is over and above 8% of your income.

With the health care reform bill, there will be deductions, but there will also be higher taxes, particularly for those who belong to the high-income bracket.

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