by C. L. Easey

Created on: August 20, 2009

Certain types of health insurance premiums can be deducted on a tax return depending on the type of policy and who is paying the premium. The IRS allows a health insurance tax deduction for a business or individual who pays the full premiums for health insurance coverage. There are also certain types of rules that apply for individuals who are self-employed and paying for health insurance. There are only specific types of health insurance premiums that can be used as tax deduction.

Eligible Expenses

Premiums that are paid for a health insurance policy that provide coverage for certain types of medical care can be included on a tax return. Policies can provide coverage for hospitalizations, x-rays as well as any surgical fees. Eligible coverages also include prescription drugs, replacement of contact lenses, certain association memberships and certain types of long-term care insurance policies.

Ineligible Expenses

Premiums cannot be included on a tax return for payments that are made for life insurance polices, a disability income insurance policy as well as an accidental death or dismemberment policy. Premiums that are paid for a supplemental insurance policy are also ineligible to be included on a tax return.

Employer Paid Premiums

Premiums that are paid by an employer for medical care or health insurance costs are typically excluded from income when filing a tax return. While a deduction cannot be included the total amount of income to be taxed will decrease. Premiums can also include funds that an employer contributes to a health savings account. An employer can pay premiums for a group health insurance policy or an individual health insurance policy.

Employer Reimbursement

When an individual pays for a heath insurance premium and receives a reimbursement from an employer the reimbursement amount is not treated as taxable income. A Cafeteria plans as defined by section 125 of the Internal Revenue code can be setup to have medical expenses reimbursed by an employer. The amount that an individual pays for medical expenses is deducted from gross income on a tax return and is not used as a deduction.

Self-Paid Premiums

Premium that are paid for individual health insurance is typically not deductible on when filing a tax return. However, if deductions are itemized on a tax return any medical expenses not reimbursed that exceed 7.5% of adjusted gross income can be deducted for medical expenses. Any amount over 7.5% can be deducted on a tax return. This can include premiums for hospital stays surgeries and any major medical procedure.

Self-Employment

Individuals that are self-employed can deduct a certain percentage of medical expenses as a business expense on a tax return. The amount of the deduction needs to be less than the amount of earned income for the year. The deductions are not limited to the 7.5% requirement for medical expenses.

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