If it’s possible to do so, deducting health insurance premiums can greatly affect how much one pays in taxes. However, deduction rules and amounts can be complex. Below is a brief explanation of the rules on tax deductions for payments to Absolute Insurance Agency. a Health Insurance Company Des Moines IA.
When It’s Not Deductible
If an employer or other entity pays for one’s health insurance coverage, premiums are not deductible. This also applies to situations where an employer pays part of the premium; the taxpayer cannot deduct the part they didn’t pay. Those who bought family or individual plans on the ACA exchange will find the situation even more complicated.
No Deductions for Insurance Bought With Pre-Tax Funds
The premiums paid for employer-sponsored health insurance typically come out of ones paycheck before taxes are computed. This makes the person’s income look smaller, in the same manner, that 401(k) contributions do. Because the premium was paid before income was taxed, it cannot be claimed as a deduction. If one isn’t sure whether their premiums are taken out before or after taxes, they can ask their company’s payroll department or read their W-2 form.
When Health Insurance Premiums May be Deducted
Those who are self-employed and not eligible for corporate health insurance through a spouse’s company may be able to deduct health insurance premiums. However, one cannot deduct premiums that exceed their income. Rather than listing these deductions on Schedule A, the self-employed list them on Form 1040’s first page for an overall income reduction. This is advantageous in several ways:
* If the taxpayer doesn’t itemize deductions, they still benefit from the income adjustment.
* Decreasing income by the amount of the yearly premium may help taxpayers stay below the cutoff for other tax deductions.
* The smaller one’s income appears the easier it is to claim certain income-based deductions.
Deducting for Premiums Paid With After-Tax Money
If one purchased a family or individual health plan on the exchange or through a Health Insurance Company Des Moines IA, the money could be taken as a tax deduction. It’s listed on Schedule A, Form 1040 as a medical expense, but the deduction can be limited. Medicare Part D, Part B and Medigap program premiums may be deducted. Most people already paid for it with payroll taxes during their career; therefore, there’s no way to deduct unless one did not pay Medicare taxes or they pay monthly premiums.