As per the Internal revenue Service’s tax topic 502, in case of the medical and dental expenses, the taxpayers are allowed to deduct a percentage of the cost incurred for medical and dental treatment purposes. The taxpayer is eligible for deduction with respect to qualifying medical expenses that include the premium paid for the purpose of healthcare. Meanwhile, taxpayers should also note that premiums paid for life insurance and income replacement policies do not attract the insurance premium tax deductibility feature.
In order to implement the same, the taxpayer needs to itemize the deductions. If the taxpayer prefers to take standard deductions, there is no question of claiming deductions with respect to health insurance. He could deduct the amount that is paid to the insurance premium account. The amount contributed by the employer is not deducted. You need to enter the health insurance premium amounts paid for your spouse, dependents and your own health care needs. In fact, the gross total of expenses incurred with respect to health insurance premium is added to the qualifying medical and dental expenses to arrive at the amount that is to be deducted.
The total of the medical and dental expenses that is beyond 7.5 percent of the adjustable gross income is eligible for tax deductions. You can enter your medical and dental expenses in Line 1 of the IRS form 1040 that is provided in Schedule A.
Tax treatment if you are self employed
As per the Internal Revenue Services 402, in case of Medical and Dental expenses, self-employed taxpayers are eligible for tax deductions even without itemizing their deductions, provided they meet certain criteria. The taxpayer can deduct the amounts that are paid as part of the health insurance for spouse and dependents while in a month where he/she is not qualified for the health insurance program provided by the employer. Line 29 of IRS form 1040 provides the details of deductions by the self-employed taxpayers.
If the taxpayers’ health insurance is paid by employees, they cannot avail the insurance premium tax deductibility feature. However, certain companies allow their employees to pay a percentage of the company subsidized insurance with pretax dollars. These types of payments cannot be included in the health and dental expenses. In fact, policies that provide insurance cover for prescription drugs, hospitalization, dental care, medical devices, and surgery are eligible for tax deductions.
Before you buy health insurance, compare it with the next best alternative. Make sure that your health insurance policy supports your health care needs while going for the benefits of tax deductions.