If you lose your job, you're usually entitled to continue your current health insurance through provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985, but you have to pay the premiums. If you're paying out of pocket, you might be able to translate those COBRA premiums into a tax deduction as part of the medical expenses deduction.
Health insurance premiums that you pay out-of-pocket count as a deductible medical expense. COBRA premiums count as a deductible health insurance premium as long as you're paying the premiums yourself. If your employer is still subsidizing your premium, you can't deduct that portion. For example, say your premium would be $400 per month, but your employer subsidizes $50 of it so you only pay $350. You can only include $350 of the premium in your deduction.
Premiums for Family
If your COBRA coverage also includes coverages for your family, you might also be allowed to deduct those costs. Besides your own premiums, you can also include the premiums you paid for your spouse and anyone you claim as a dependent. For example, if your COBRA premiums cover your spouse and your dependent son, you can include the full amount of the premiums.
Despite the fact that you pay the COBRA premiums, they might not amount to enough to actually result in a tax deduction. The medical expenses deduction only allows you to write off the premiums that exceed 7.5 percent of your adjusted gross income. For example, say you have an AGI of $35,000 because you only worked part of the year. If your COBRA premiums total $6,000, you can only deduct $2,625 -- plus any other qualified medical expenses paid in the same year.
The medical expenses deduction is an itemized deduction, which means that you're only allowed to claim it if you use Schedule A and forgo the standard deduction. For example, if you're married filing jointly in 2013, your standard deduction is $12,200, so it doesn't make sense to give it up just for a $2,625 deduction for COBRA premiums. But, if you have other itemized deductions, such as mortgage interest or donations to charity, that make your itemized deductions worth more than the standard deduction, then it makes sense to itemize.
Video of the Day
- Jupiterimages/Comstock/Getty Images