Health insurance is a major expense for many families. If you fit into certain categories, you may be able to receive a tax break to reduce your cost of health insurance. Here are some of the tax breaks available.
Income Under 400% of Poverty Level: Premium Tax Credit
If your income is under 400% of the federal poverty level and you buy your own health care plan instead of having one through your employer, you may qualify for the Premium Tax Credit. This is also known as the Obamacare subsidy.
The credit pays for all or part of your health insurance based on your income and the plan you choose. The qualifying income varies based on where you live and the size of your family, but 400% of the federal poverty level extends well into middle-income levels. If you’re eligible for the credit, you can choose to apply it to your health insurance premiums each month or to get an additional credit on your tax return.
You Own a Business or Are Self-Employed
If you own a business or are self-employed, your health insurance premiums can also be tax-deductible. If you buy a health insurance plan that covers your employees, that’s a deductible business expense. If you buy your own health insurance, you can use the self-employed health insurance deduction. Both forms of the deduction lower your income by the amount of health insurance premiums that you paid, so you end up paying income tax on a lower income.
You Select a High-Deductible Plan Eligible for a Health Savings Account
A tax deduction that’s available to just about everyone is a health savings account. This isn’t a direct deduction on your health insurance premiums, but you need to choose a qualifying health insurance plan to use an HSA. A qualifying plan is one that has a high deductible, with limits set by the IRS each year, and meets certain other standards of coverage. You don’t need to worry about the exact details since the plan will say if it’s HSA-eligible when you buy it.
Any money that you put into your HSA is tax-deductible. If you take the money out to pay for medical expenses, there is no tax or penalty on it. This effectively gets you a discount on medical bills equal to your income tax rate.