Health insurance premiums count as a qualifying medical expense, but only for certain people. If you want to claim your daughter's health insurance premiums, the requirements depend on whether you're self-employed or you're paying out of pocket. If you're paying with pre-tax dollars through an employer plan, you can't claim a deduction because those costs aren't included in your taxable income to begin with.
If you claim your daughter as your dependent, you're good to go as far as deducting the health insurance premiums you paid for her. But, even if you don't, there's still hope. You can also include your daughter's premiums if you would have been able to claim her as dependent except that she had more than the allowed income for a dependent; she filed a joint return; or you yourself could be claimed as someone else's dependent. For example, say you would claim your daughter as your dependent, but she made $7,000 during the year. You can still deduct the health insurance premiums you paid for her.
The medical expenses deduction isn't a straight dollar-for-dollar deduction. First, if you're not itemizing, you don't get a deduction, period. Second, you're only allowed to deduct the portion of your expenses, including your daughter's health insurance, that exceeds 7.5 percent of your adjusted gross income. This percentage will increase to 10 percent beginning in the 2013 tax year. For example, say your AGI during the 2012 tax year was $50,000. So, 7.5 percent is $3,750. If your daughter's health insurance, plus your other miscellaneous expenses, total $5,000, your deduction is $1,250.
Self-Employed Insurance Deduction
If you're claiming insurance premiums paid while self-employed, the rules are slightly different. You still get to claim your daughter's insurance premiums if you claim her as a dependent, but you can also claim them if she's under 27 years old. Plus, when you're self-employed, you get to deduct the premiums as an adjustment to income rather than as an itemized deduction. And, there's no 7.5 or 10 percent threshold to worry about.
Tax Year Timing
You can only deduct the expenses in the year you actually pay them, not the year that the coverage applies. For example, if you pay the premiums in December 2013 and they cover all of 2014, you can only deduct those costs on your 2013 return. But, if you paid the same premiums in January, you would deduct them on your 2014 return.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."