When you’re eligible, claiming tax deductions can be an effective way to reduce your tax burden. If you don’t know certain tax deductions exist, you can find it challenging to identify their available deductions. Surprisingly, certain costs related to your insurance and health care may lower your tax bill. Many times, there is a possibility to deduct your medical expenses, insurance premiums and other health-related costs from your taxes. There are many other things to consider for potential deductions. Working with a financial advisor is best when it comes to all the tax options to find the right strategy for your situation.
HSA Contributions
Health Savings Accounts are available to people with high-deductible health care coverage, whether that be for themselves or their families. While HSAs are technically an insurance product, the contribution you make can be used to supplement your health insurance and reduce your medical costs. For example, if you withdraw HSA funds tax-free to pay your health care premiums or other qualifying medical expenses, you can do so provided your plan allows it.
In addition, HSA contributions are also tax-deductible. So, if you are contributing regularly, you could get a welcome break at tax time. In 2023, HSA limits are $3,850 for individual coverage and $7,750 for family coverage. The limit of contribution results in a sizable tax deduction. You would not need to itemize deductions on form 1040 to qualify.
Qualifying Medical and Dental Expenses
Per the IRS, you also can claim a deduction if you itemize deductions and have qualifying medical and dental expenses exceeding 7.5% of your adjusted gross income for the year. It is important to keep in mind that you can only deduct the part of your expenses that exceeds 7.5% of your annual gross income, not all of your medical costs. For example, if you spend $6,000 on health care each year and your annual gross income was $60,000, you can deduct $1,500 on your taxes but not the full $6,000.
While you’d most likely need to spend a sizable amount on health care to be eligible for this deduction, it might be possible if you or a member of your family was battling a serious health issue and spent a significant amount on treatment and care.
Health Care Premiums
Claiming tax deductions that you are eligible for is an effective way to reduce your tax burden. It could be challenging to identify all the deductions available to you. It can be surprising to find out that certain costs related to your health care and insurance could lower your tax bill. In many cases, you could be able to deduct your medical expenses, insurance premiums and other health-related costs from your taxes. Again, working with a financial advisor when it comes to deductions can help with all your tax options to find the right strategy for your situation.
Generally, with an employer-sponsored health plan, your company subsidizes a portion of your insurance premiums. The employer-paid premiums and any pre-tax premiums from your paychecks are not tax-deductible. You might might qualify for a tax deduction with an employer-sponsored health plan, but you could potentially qualify if you are paying anything out-of-pocket for health care premiums.
If you have purchased any coverage through a marketplace, COBRA, or pay for Medicare Part B, C or D, your premiums may be tax-deductible if you are itemizing deductions but only the portion that exceeds the threshold of 7.5% of your annual gross income. Premiums for Medicare Part A are NOT tax-deductible.
The Bottom Line
While it would obviously be great to have a perk of all insurance premiums being tax-deductible, it simply is not the case. However, you can deduct a portion of your health or auto insurance premiums, as well as other qualifying or health-related costs. In doing so, you could help reduce your tax burden and keep more cash in your pocket. Consider speaking to a tax professional when it comes to learning about all your options.
LIG Solutions is an OGR Supply Partner, allowing all employees of OGR member-firms as individuals or families to shop and enroll in healthcare products. This concierge service partners you with a licensed insurance agent to answer any questions you have and navigate the insurance marketplace for medical, major medical, critical care, accident medical plans, Medicare, short-term policies, vision, dental, disability income protection, supplemental insurance coverage and more, without a vested interest in which carrier you choose.
This article was originally published in the Winter 2023 issue of The Independent® magazine. Click here to read the entire issue.