Can You Claim a Deduction on Form 1040 for Health Insurance Contributions?

by Mark Kennan

    Health insurance premiums aren't cheap, even if you pay through a subsidized employer plan. Depending on how you pay your health insurance premiums, you might not be able to claim a deduction on your tax return. But, just because you can't take a deduction doesn't mean you're not receiving a tax benefit.

    Eligible Insurance Premiums

    Eligible health insurance premiums include insurance policies that provide coverage for medical services, prescription drugs, dental care and certain long-term care. However, you can't include the cost of policies for life insurance, earnings replacement -- even if it only is triggered by medical emergencies -- or policies that make payments for injuries like the loss of a limb or your vision. If you have a policy that is partially eligible, you can only deduct the applicable portion of the premium, and only if it is separately stated on your insurance contract or bill.

    Pre-tax Insurance Contributions

    If you contribute to your health insurance through a salary reduction agreement with your employer, you can't claim any tax deductions for that expense when you file your return. Why? Those costs are never included in your taxable income to begin with. See, when you make the payments through an agreement, your employer doesn't include those costs in your taxable income for the year on your W-2. That way, you get the tax benefit without having to report a deduction on your tax return. For example, say your salary would be $69,000 but your employer takes out $5,000 for health insurance. Your W-2 only shows $64,000 of taxable income, so it's like the deduction has already been taken.

    Self-Employed Insurance Deduction

    The only deduction actually reported on Form 1040 for health insurance premiums is for the costs you pay when you're self-employed, which goes on line 29. To qualify for the deduction, you must set up the health insurance plan in the name of your trade or business and you can't deduct more than your net self-employment income. In addition, you can't count premiums you paid during any month that you could have participated in an employer-sponsored plan, either through your employer or your family member's employer.

    Out-of-Pocket Costs

    The medical and dental expenses deduction might allow you to write off health insurance costs you pay out-of-pocket when you're not self-employed. But, technically it goes on Schedule A as an itemized deduction rather than on Form 1040. In addition, as of the 2013 tax year, only the expenses in excess of 10 percent of your adjusted gross income qualify for the deduction. But, when figuring your deduction, you can include all your eligible medical costs, not just your insurance premiums.

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    About the Author

    Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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