No matter how you pay your health insurance, it's deductible. The way you pay it and whether you're self-employed or work for an employer makes the difference in the where you take off the premium and the amount you can deduct from your taxes. If you pay the premium with funds in a cafeteria plan, a Section 125 plan, the premium isn't tax deductible since you already paid it with pretax dollars.
Paying at Work
If you have part of your paycheck taken for health insurance, and the money is from after-tax dollars, you can deduct your health insurance premium. However, you have to itemize your deductions in order to benefit from it. You remove it by placing it in the section called medical expense on your Schedule A. You add medical expenses and the premium you paid and subtract 7.5 percent from that amount. If it's zero or negative, you don't get a deduction. If your total itemized deductions are less than the standard deduction for your filing status, you're better off taking the standard deduction and not take a deduction for health insurance.
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The self-employed get to remove the cost of health insurance before calculating their adjusted gross income. That means they get to deduct 100 percent from their income. You list it on line 29 on the 1040 form for 2011. However, you can only take it if you were a businessperson that filed Schedule C. If you were a general partner or limited partner with guaranteed payments or were more than a 2 percent shareholder in an S corporation and received wages from that corporation, you can also take the deduction up to the amount you made for the year if you established it under the business.
Cafeteria Plans and Pre-Tax Plans
Cafeteria plans use either employer provided funds on a pre-tax basis or your pre-tax earnings to fund health insurance and other benefits. If you participate in these plans, you already receive your insurance pretax and cannot write off the cost of the premiums. Writing off the cost of the premiums, in effect, give others the benefit of paying for their insurance with pretax dollars.
Don't Forget the HSA
If you had a high deductible health policy (HDHP) and a health savings account (HSA), the money you put into the HSA is also deductible, in the same fashion as your health insurance premium. Your deductible contributions may be limited and you will need to complete IRS Form 8889. If your employer added to the HSA account, the money isn't deductible.
- MSN Money: 10 Big Deductions Too Many People Miss: Jeff Schnepper: Updated Dec. 14, 2009
- Internal Revenue Service: Form 1040 for 2011
- Internal Revenue Service: Schedule A Itemized Deductions
- Internal Revenue Service: Publication 15-B (2012) Fringe Benefits
- Internal Revenue Service: Publication 17 Your Federal Income Tax