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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?

  • What is the deal with individual plans being post-tax, and group plans being pre-tax, anyway? Where is the outrage? Where are the protests in Washington? – Michael Dec 14 '14 at 0:40
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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."

  • 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? – Tim 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.

  • 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
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Yes - if the premiums were not paid with pre-tax money.

Generally if you have insurance through your company, your portion of the premium is paid for with pre-tax payroll deductions, and Box 1 of your W2 will be adjusted accordingly. Double-check if your total income reported has been adjusted. Further reading.

For the self-employed, this can be a great deduction. Further reading.

The IRS online worksheet "Can I Deduct My Medical and Dental Expenses?" is a great tool to work through whether you can take this (or other) medical deductions. The summary on the description page says it takes into account (among other things):

"If you were reimbursed or if expenses were paid out of a Health Savings Account or an Archer Medical Savings Account"

...implying that the no double-dip rule holds true.

Sources

Publication 502, "What Medical Expenses Are Includible?" - Insurance Premiums:

You can include in medical expenses insurance premiums you pay for policies that cover medical care. You can't include in medical expenses insurance premiums that were paid and for which you are claiming a credit or deduction. Medical care policies can provide payment for treatment that includes:

  • Hospitalization, surgical services, X-rays,
  • Prescription drugs and insulin,
  • Dental care,
  • Replacement of lost or damaged contact lenses, and
  • Long-term care (subject to additional limitations). See Qualified Long-Term Care Insurance Contracts under Long-Term Care, later.

If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement.

Tax Topic 502 - Medical and Dental Expenses

If you itemize your deductions for a taxable year on Form 1040, Schedule A (PDF), Itemized Deductions, you may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents. You may deduct only the amount of your total medical expenses that exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older. The 7.5% limitation is effective only from January 1, 2013 to December 31, 2016 for individuals age 65 and older and their spouses. You figure the amount you are allowed to deduct on Form 1040, Schedule A.

Deductible medical expenses may include but are not limited to the following:

  • [ ... ]
  • Payments for insurance premiums you paid for policies that cover medical care or for a qualified long-term care insurance policy covering qualified long-term care services. However, if you are an employee, do not include in medical expenses the portion of your premiums treated as paid by your employer under its sponsored group accident, health policy, or qualified long-term care insurance policy. Also, do not include the premiums that you paid under your employer-sponsored policy under a premium conversion policy (pre-tax), paid by an employer-sponsored health insurance plan (cafeteria plan) or any other medical and dental expenses unless the premiums are included in box 1 of your Form W-2 (PDF), Wage and Tax Statement. For example, if you are a federal employee participating in the premium conversion program of the Federal Employee Health Benefits (FEHB) program, you may not include the premiums paid for the policy as a medical expense since they are never included in your gross income.
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    Aside from the (rejected) hacker edit attempt, would the downvoter please explain? If this answer is inaccurate I would like to know. – brichins Nov 21 '16 at 21:50

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

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