Buy Your Own Health Insurance – Get a Tax Break

Originally posted at MikeBraunHealth.com

The government wants you to have health insurance. So much so that it will actually penalize you if you go without health insurance – by as much as 2 percent of your household income in 2015, or $325 per person for the year ($162.50 per child under 18), up to $975 per family, whichever is higher.

But Uncle Sam has a carrot to go along with the stick – it actually encourages the ownership of health insurance by providing tax incentives to help make the decision to buy coverage easier.

Self-Employed Individuals

Self-employed individuals may be able to deduct the cost of their health insurance premiums for themselves and their families – up to the amount of earned income claimed for the year.

Health insurance premiums are considered an adjustment to income, and hence are “above the line” deductions. That’s good news, because it means you don’t have to itemize your expenses in order to take the deduction. You can take the tax benefit while still opting for the standard deduction. It’s also not subject to the 10 percent of adjusted gross income threshold that generally applies to medical expenses if claimed as miscellaneous itemized expenses on a Schedule A.

You do need to file using a Form 1040, however. You cannot use a Form EZ.

You must have paid the premiums yourself, however. If someone else can take a tax deduction for your premiums, then you cannot subtract your health insurance premiums from your income.

You can only claim this deduction if you are not eligible for an employer sponsored plan, and eligibility is determined month-by-month. So if you were laid off or left a job for six months out of the year and paid your own health insurance premiums (including COLA premiums) then you can deduct the cost of premiums paid those six months.

Lower-income Families

Lower-income Individuals and families can take advantage of a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. You don’t have to have a high income to take advantage of this provision; the credit is refundable, so it still works for people with little or no income tax liability. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums.

If you make over 400 percent of the federal poverty level, however, you will likely not qualify for this credit.

If Your Employer Pays Your Premiums

You are not taxed on premiums your employer pays on your behalf for group coverage. You cannot claim a deduction on any premiums your employer paid on your behalf – your employer is already claiming that deduction (However, if you are the owner/employee of your own corporation, you can have your corporation pay the health insurance premiums. This may help you if your corporate tax rate is higher than your personal income tax rate – but don’t forget to account for Social Security Taxes in this scenario!

Long Term Care Insurance

You may be able to deduct premiums paid for qualified long term care insurance, depending on your age. These premiums are also ‘above the line’ deduction, noted on Page 1 of your Form 1040, so you do not have to itemize your expenses in order to take advantage of the deduction. It is also not subject to a 10 percent of AGI threshold.

Your allowable deduction is based on your age (or your spouse’s age, if your spouse is the insured), and increases as you get older. For 2015, allowable deductions are as follows:

  • 40 or younger:                                                          $380
  • More than than 40 but not more than 50:                 $710
  • More than 50 but not more than 60:                         $1,430
  • More than 60 but not more than 70:                         $3,800
  • More than 70:                                                           $4,750
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s