It is possible for the US taxpayer to claim tax deductions for the insurance premium payments for the corresponding year. Generally, while claiming deductions you can either claim the standard deduction or the itemized deduction. It is prudent to pick the one that saves you the maximum in taxes. When you are using the Itemized deductions, the total amount of premiums listed for tax deductions that exceed 7.5% of your gross national income can be claimed.
How to apply for the health insurance premium tax deduction?
While applying for the tax returns you have to use the Schedule-A form for Itemized Deductions along with the form 1040 which can be downloaded from the IRS website.
- Take into account all your health insurance premium payments for the year. Find the sum of all the expenses that were not reimbursed in the current year.
- Calculate your adjusted gross income. Enter the amount under section 38 of 1040 form. Calculate the threshold limit by finding the 7.5% of the adjusted gross income amount. For example if your AGI amount is 25000$, then your threshold limit will be 25000×0.075, which is 1875$. This means you can claim deductions on the health insurance premium tax which comes above this amount.
- Let’s say your total medical expenses including the insurance premium for the year, is 5000$. The amount for which you can claim the deduction is –(1875-5000)$, that is 3125$. You should include this amount under the section 4 of the Itemized Deductions Schedule-A sheet.
- Similarly you can calculate other deductions if any and file them under the itemized deductions.
Tax reduction for the self-employed
In case of the self-employed, you are allowed to claim tax reduction, if you show that you had some annual profit from the business. This should be filed under the section 29 of the 1040 form, not under the itemized tax deductions.
Health Savings Account
Taking the health Insurance policies under certain plans makes you eligible for the Health Savings Account tax reductions. For this you should choose a low premium policy. Such policies generally come with a high deductible rate. There are many tax reductions and exemptions available under this facility.
You can claim reductions in certain cases like long term medical care or if you have to pay for the medical insurance of your relatives and family members. Seek the necessary tax advice and claim all the applicable tax deductions.