- Can I Have a Health Savings Account & Regular Medical Insurance?
- Why a Company Chooses a Health Savings Account Over Group Health Insurance
- Can Retired Federal Employees Deduct Health Insurance Premiums?
- Can a Company Terminate Retiree Insurance Coverage?
- Teachers' Retirement Pensions
- Disability Insurance & Benefits
Most government employers provide health insurance as a part of their compensation packages. However, this doesn't mean that government workers can't claim additional deductions for some types of health insurance or healthcare costs on their form 1040. In addition, many of the health benefits that come in government compensation packages already carry their own tax benefits.
Medical and Dental Expenses
Government workers who itemize their deductions by attaching Schedule A to their 1040 tax form and choosing not to claim a standard deduction can deduct medical and dental expenses that they pay out of pocket. However, only expenses that exceed 10 percent of a taxpayer's adjusted gross income are deductible. This means that if someone has a $70,000 AGI and has $11,000 in out-of-pocket medical expenses, she would be able to deduct $4,000, since the first 10 percent of her AGI -- $7,000 -- is excluded. The IRS defines medical expenses relatively broadly, although purely cosmetic surgeries and non-prescription items usually aren't deductible.
As a part of the itemized medical and dental expense deduction, government employees who are collecting Medicare and also paying out of pocket for supplemental insurance can deduct their premiums. This option is only available for Medicare Part B and Part D premiums, though. Senior citizens 65 or older also benefit from a reduced cap on medical and dental deductions for tax years 2013 through 2016. Instead of subtracting 10 percent of their AGI from their medical and dental expenses to find their deduction, they only have to subtract 7.5 percent.
Self-Paid Health Insurance
If a government worker is actually a contractor and doesn't receive a government salary and benefits, he could be eligible to deduct all of his health insurance premiums using the self-employed health insurance deduction. This deduction gets claimed directly on the 1040 form and is technically an adjustment to income, which reduces a taxpayer's AGI. A part-time employee who has to buy his own insurance because he doesn't qualify for government benefits may be able to receive a tax credit against the cost of insurance premiums bought through a healthcare exchange set up as a result of the Affordable Care Act.
Tax-Advantaged Government Health Benefits
While many government-worker health benefits might not generate deductions that go on a 1040 tax return, they still have tax benefits. Money that a government (or private) employer pays toward a worker's health insurance is tax-free, as is money the worker pays for his portion of the insurance. In addition, contributions to flexible savings accounts or health savings accounts made through government payrolls are also tax-exempt, letting the worker set aside money for healthcare expenses without having to share it with the IRS.
- Internal Revenue Service: Topic 502 - Medical and Dental Expenses
- Internal Revenue Service: Publication 554
- Internal Revenue Service: Don’t Miss the Health Insurance Deduction if You’re Self-Employed
- Internal Revenue Service: Form 1040
- Internal Revenue Service: Questions and Answers on the Premium Tax Credit
- Center for American Progress: Tax Expenditure of the Week: Tax-Free Health Insurance
- BenefitsPro: 2013 HSA and FSA Cheat Sheet
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