Health Insurance and Your Taxes
You can deduct your healthcare expenses, including insurance premiums, if your unreimbursed expenses exceed 10% of your Adjusted Gross Income (AGI). Your AGI is your income after personal deductions, including qualified business expenses, school tuition and fees, student loan interest, and contributions to an HSA and some IRAs (excluding Roth IRAs). This medical expense deduction only applies if you are itemizing your deductions, as opposed to taking the standard deduction of $12,400.
Examples of unreimbursed expenses include your premiums (after any Affordable Care Act subsidy), your portion of coinsurance paid, and prescription drugs.
Let's say your AGI for the year ends up being $15,000. $1,500 is the number you must reach in order to qualify for this deduction. You choose a platinum ACA plan with extensive benefits and out-of-network coverage, which costs $120/month after factoring in a government subsidy. This brings your yearly unreimbursed medical expenses to $1,440 right off the bat. An additional $60 in unreimbursed costs will bring you to the $1,500 threshold, and anything you spend out-of-pocket for the rest of the year will be tax-deductible. This can be particularly helpful if you see a specialist regularly, such as a psychologist, gastroenterologist, or ENT, or if you have a significantly costly medical event.
For the self-employed, insurance premiums are 100% deductible! The tricky part is that you cannot deduct more than your business income (your most profitable business if you have more than one). This is not a business deduction; it is a personal write off: it will go on your 1040 form as a loss, benefitting you whether or not you itemize other deductions.