When it comes to doing your taxes, there are many expenses that can be deducted to help lower your taxable income. One major category of deductions relates to premiums paid for insurance. However, not all insurance premiums qualify as tax deductions. In this comprehensive guide, we will explore which types of insurance premiums can be deducted on your tax return.
Health Insurance Premiums
One of the most common premiums that can be deducted are health insurance premiums. If you get your health insurance through your employer, the premiums are typically deducted pre-tax from your paycheck. However, if you pay for your own health insurance policy, such as coverage you get through the Health Insurance Marketplace, you can deduct the premiums when you file your taxes.
There are a few caveats to deducting health insurance premiums:
- You cannot deduct premiums for months you were eligible to participate in an employer’s subsidized health plan. So if your work offers health coverage but you opt to buy your own policy, those premiums are not deductible.
- Premiums for policies covering yourself, your spouse, and dependents are deductible. Premiums for domestic partners or other family members who do not qualify as tax dependents are not deductible.
- Only the portion of premiums allocable to medical care coverage can be deducted. Premiums covering vision, dental, disability income, or long-term care are not deductible.
When claiming the health insurance deduction, you can deduct premiums directly on Schedule A of Form 1040 as a medical expense. Medical expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income, so this deduction is most beneficial for those with high medical costs.
Long-Term Care Insurance
Premiums paid for qualified long-term care insurance policies are also deductible as a medical expense. A qualified policy is one that covers only long-term care services such as care in a nursing home, assisted living facility, or your own home. The policy must be guaranteed renewable and have a maximum benefit period of at least 12 months. Daily benefit limits and inflation protection clauses may apply.
As with health insurance, you must total medical expenses including long-term care premiums and only the amount exceeding the 7.5% AGI threshold is deductible. There are also annual limits tied to your age on how much long-term care premium can be deducted. The deductible limits are as follows:
Age | Maximum Long-Term Care Premium Deduction |
---|---|
40 or under | $450 |
41-50 | $850 |
51-60 | $1,690 |
61-70 | $4,510 |
Over 70 | $5,640 |
Self-Employed Health Insurance
Self-employed individuals can deduct 100% of health insurance premiums paid for policies covering themselves, spouses, dependents, and children under age 27 as of the end of the tax year. This deduction is taken above-the-line on Schedule 1 of Form 1040 and is not subject to the 7.5% AGI threshold.
However, you cannot claim the self-employed health insurance deduction if you are eligible to participate in a subsidized employer-sponsored health plan. For example, if your spouse’s employer offers family coverage, you cannot deduct premiums for an individual policy you purchase.
Medical Savings Account Contributions
Contributions made to a medical savings account (MSA) are deductible above-the-line. MSAs are paired with high deductible health plans and contributions can be made tax-free to cover medical expenses. Self-employed individuals and small business employees are generally eligible to set up MSAs.
For 2023, the maximum MSA contribution is $3,850 for individual coverage or $7,750 for family coverage. Note that withdrawals made to pay non-medical expenses are taxed as ordinary income and also subject to a 20% penalty until age 65.
Healthcare Sharing Ministry Memberships
Premiums paid to join a healthcare sharing ministry can also be deducted as medical expenses subject to the 7.5% AGI threshold. Healthcare sharing ministries facilitate the sharing of medical costs among members who have common ethical or religious beliefs. Examples include Christian Healthcare Ministries, Samaritan Ministries, and Liberty HealthShare.
Keep in mind that healthcare sharing ministries are not insurance – they do not guarantee payment of medical bills. But membership fees can qualify as deductible medical expenses if certain criteria are met.
Retired Public Safety Officer Premiums
If you are a retired public safety officer, your health and long-term care insurance premiums can be deducted up to $3,000 annually above-the-line, not subject to the 7.5% AGI threshold. This applies to retired law enforcement officers, firefighters, EMTs, and chaplains.
Business Insurance Premiums
When you operate a business, premiums paid for policies like general liability insurance, professional liability insurance, commercial auto insurance, and business owner’s insurance are deductible business expenses. The deduction is taken on Schedule C for sole proprietors or on the corporate tax return for incorporated businesses.
Premiums for group health plans offered by your business for employees are also deductible business expenses. As are premium contributions to retirement plans like 401(k)s.
Homeowners and Renters Insurance
Unfortunately, premiums paid for homeowners, renters, condo, or co-op insurance are not tax deductible. These policies cover personal residences and belongings rather than business assets, so the premiums are not deductible.
Auto Insurance
Personal auto insurance premiums are also not tax deductible. However, if you use your personal vehicle for business purposes, you may be able to deduct a portion of auto insurance premiums as a business expense based on the business use percentage.
You can also deduct 100% of commercial auto insurance premiums for vehicles used exclusively for business.
Life Insurance
Premiums paid for individual life insurance policies are not tax deductible. However, premiums paid by employers for group term life insurance for employees up to $50,000 in coverage are deductible as business expenses.
Interest paid on loans secured by a life insurance policy’s cash value is also deductible, subject to limitations.
Mortgage and Rent Payments
Mortgage interest and property taxes associated with your home are deductible on Schedule A subject to limitations. However, principal mortgage payments and rent payments are not deductible.
Conclusion
When preparing your tax return, be sure to review your past year’s expenses to identify insurance premiums that may qualify for deductions. Common deductible premiums include health insurance, long-term care insurance, medical savings account contributions, and business insurance policies.
Premiums for homeowners, renters, auto, and life insurance generally do not qualify for deductions. Making the most of available insurance premium tax deductions can help maximize your tax savings.