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I currently have health insurance provided by my employer. My monthly premiums are deducted pre-tax from my salary.

I'm considering canceling this health coverage in favor of an individual health plan. However, I would be paying my monthly premiums post-tax because, of course, these payments cannot be deducted pre-tax from my salary.

So I'm wondering, can I claim these health care premiums on my taxes and gain the tax benefit as if I had these premiums deducted pre-tax?

If so, can somebody give some advice on how to avoid a huge(?) tax return every year?

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2 Answers

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Does you employer offer a Flexible spending account? If so, you deposit pretax funds to this account and are reimbursed for your (medical) insurance premiums. Wiki on the Flex account indicates IRS pub 502 shows what items are covered. I'm sorry if this seems convoluted. Otherwise, health care is deductible as an itemized deduction only to the extent it exceeds 7.5% of your AGI. For most, this doesn't make the cut.

CORRECTION - another question here Deduct Health Care Premiums for Family When Employer Only Pays for Me resulted in the conclusion one cannot use the FSA to pay insurance premiums. One can look at Publication 969 on the top of page 17,

"You cannot receive distributions from your FSA for the following expenses.

• Amounts paid for health insurance premiums."

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So because my employer-sponsored health plan is pretax, I cannot use FSA towards premiums. But if I have an individual health plan, it is post-tax and thus qualifies for FSA? – T Reddy Oct 22 '11 at 0:26
Yes. When I look at my pay stub, my premiums for healthcare are taken out pre-tax. So my advice is how to duplicate the pre-tax effect by using Flex Account. – JoeTaxpayer Oct 22 '11 at 0:28
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People cannot deduct health insurance premiums from income for tax purposes. But COMPANIES can. That's why it's cheaper to use a company plan than to buy insurance on one's own.

The way to take advantage of this deduction is to start a company, by incorporating. But you'd need to generate income before you can start taking deductions for health insurance, or other expenses.

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I don't think it is true that "People cannot deduct health insurance premiums from income for tax purposes". The law does allow for deduction of healthcare insurance premiums, but it is necessary to itemize your deductions instead of taking the standard deduction, and only that part of your total healthcare expense (including insurance premiums) that exceeds 7.5% of your AGI is deductible. As JoeTaxpayer says in a different answer, "For most, this doesn't make the cut." Also, healthcare insurance premiums for self-employed people have some different rules than for W-2 employees. – Dilip Sarwate Jun 16 '12 at 1:06

protected by Chris W. Rea♦ Jun 16 '12 at 0:58

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