The cost of medical care in the U.S. is an issue almost every family faces. Each year the cost of medical care, as well as health insurance premiums, only increase, making citizens think about the need to take advantage of the benefits the government provides them and to deduct them as part of the tax deductions for the year. Such a tax advantage can help save money and beat rising health insurance costs.
What are health insurance premiums?
The Affordable Care Act, passed in 2010, regulates this issue.
Simply put, this is the money you pay upfront to keep your insurance policy current. Most often, these are monthly payments, but employees for whom such premiums are paid for by their employers from their paychecks only see these deductions on the paystub.
However, medical expenses don’t end there. You may have to spend a deductible or other out-of-pocket payments while receiving medical care. The amount of these copayments depends on the type of insurance you choose. But generally, the higher the premiums you or your employer pay, the lower the out-of-pocket copayments you incur.
Small monthly premiums for health insurance can only be beneficial if you’re sure your family will need minor medical care.
But, as you can see, no one can guarantee you that.
Do not be fear. Every insurance plan has limits on copayments. That means you won’t have to give away all of your assets to pay for medical care.
What are the differences in health insurance premiums for different types of coverage?
Employer-sponsored plan.
Analyses show that most Americans choose employer-sponsored plans. This type of insurance means that your employer pays premiums before taxes are taken out of your paycheck. If you also account for these amounts on your own at the end of the year, you will have deducted them twice. It is unacceptable.
However, amounts paid to purchase or supplemental insurance premiums you pay yourself are eligible to deduct. In this case, you should use the money from which the tax has already been paid. You can remove the amount by which your total health insurance expenses for the year overreach 7.5% of your adjusted gross income.
Suppose you are an independent contractor (self-employed and have no boss) and make a net income calculation for the IRS for the year. At that point, you can deduct the cost of premiums you paid that year on a health insurance policy that provides coverage, including long-term care insurance, for yourself, your spouse, and any dependents. This policy may also cover the cost of health care for a child. But the child can be only under 27 years of age at the end of the year. He may not even qualify as a dependent. If you do not make a 100% deduction for health insurance premiums on a self-employment basis, you can include any remaining amounts in the itemized deduction.
COBRA.
This type of insurance allows you to stay on group coverage even if you are laid off, but only for 18 to 36 months. The person has 60 days to make a choice. This type of insurance does not allow the self-employed, including 1099 independent contractors, to make a deductible because it is part of the employer’s coverage. However, there is an option for itemized deduction when filing a tax return.
Medicare.
You have a great possibility of saving money if you become a Medicare member. You have the right to claim tax deductions to reduce your tax liability.
Any copayments and deductibles you pay for Medicare-covered services are considered allowable by the state. Out-of-pocket costs for prescription drugs are also deductible. Any expenses not covered by Medicare for which you paid extra are also that one. These are expenses for routine checkups, dental services, nursing home stays and treatments, and more.
You must know the examples of the expenses you can include in calculating the medical expense deduction.
Down is a list of the most exciting items you can include in calculating your medical expense deduction:
- Abortion
- Acupuncture
- Alcoholism (inpatient’s treatment at a therapeutic center for alcohol addiction: meals and lodging provided by the center during treatment).
- Ambulance
- Annual Physical Examination
- Birth Control Pills
- Body Scan
- Braille Books and Magazines (if the cost of Braille books for use by a visually impaired person is more than the price of regular printed editions).
- Breast Pumps and Supplies, Breast Reconstruction Surgery, Transplants
- Capital Expenses (special equipment installed in a home or for improvements, if their primary purpose is medical care for you, your dependent, or your spouse), Home Improvements
- Christian Science Practitioner
- Dental Treatment
- Drug Addiction (an inpatient’s cure at a therapeutic center for drug addiction, which includes meals and lodging provided by the center during therapy), Drugs
- Eyeglasses, Eye Surgery, Contact Lenses, Vision Correction Surgery
- Fertility Enhancement, Sterilization, Vasectomy
- Hearing Aids
- Laboratory Fees (if it is a part of medical care)
- Meals (at a hospital or other institution if a central reason for being there is to get medical care)
- Nursing Home
- Operations (which are not cosmetic surgery)
- Osteopath
- Oxygen
- Psychiatric Care, Psychoanalysis, Psychologist
- Stop-Smoking Programs
- Wheelchair
If you missed or forgot to claim medical expenses in a previous year, you can file a Form 1040-X to correct this. You must file such a claim within two years of the tax being paid or no later than three years from the date you filed the original return, whichever is later.
Health Insurance Tax Credit.
In addition to the above, take advantage and opportunities to get additional tax credits, like the tax credit. If you qualify, 72.5% of your qualified health insurance premiums can be paid in advance monthly to your health plan administrator on your behalf. It will reduce your out-of-pocket premium payments.
Even if you have tax subsidies, health insurance premiums are often extreme. You need to enlighten yourself with all the rules that apply to you for the type of coverage you choose. Familiarize yourself with the tax credits that are available to you. Don’t forget about the opportunity to seek professional advice to determine the best options for you.
