Is health insurance tax deductible?
The answer depends on your employment status and how you file your taxes.
Health insurance can be one of your biggest yearly costs. This is especially true if you are a self-employed individual. It also applies if you don’t get coverage through an employer sponsored health plan. In this guide, you’ll learn who qualifies, what expenses count, and how to claim these deductions correctly.
Key Takeaways
- It varies based on the type of coverage you have. Employees who receive health insurance through work pay premiums with pre-tax dollars, so the deduction happens automatically. Self-employed individuals can deduct 100% of their premiums directly on their income tax return without itemizing.
- Most employees cannot deduct premiums they pay out of pocket. If you buy your own plan and are not self-employed, you can only deduct premiums as medical expenses. Only the amount above a set percentage of your income qualifies.
- Your HSA contributions are always tax deductible. Even if you cannot deduct your premiums, Health Savings Account contributions reduce your taxable income dollar for dollar. This makes an HSA one of the most reliable tax benefits for anyone with a high-deductible health plan.
When Is Health Insurance Tax Deductible?
Are health insurance premiums tax deductible if you’re self-employed?
Absolutely, if you meet certain IRS requirements, you can deduct 100% of your premiums, even without itemizing.
Health insurance can be tax-deductible if you meet IRS rules. This most often applies to self-employed people who pay their own premiums.
If you qualify, this deduction can reduce your adjusted gross income (AGI), helping you pay less in taxes overall.
Understanding the Self-Employed Health Insurance Deduction
This deduction is an “above-the-line” deduction, meaning it reduces your adjusted gross income (AGI) directly, which can lower your overall tax liability.
Qualifying Criteria:
- You must have a net profit from self-employment.
- You cannot be eligible for other health insurance coverage, such as through a spouse’s employer.
- Your deduction cannot exceed the earned income you receive from the business under which you establish the insurance plan.
If you receive a premium tax year credit for Marketplace insurance, you must reduce your deduction. Reduce it by the amount of the credit you received.
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Deducting Medical and Dental Expenses
Beyond premiums, you can deduct unreimbursed medical and dental expenses. You must itemize deductions. Only costs over 7.5% of your AGI qualify.
Deductible expenses include:
- Doctor’s visits and treatments
- Prescription medications
- Medical equipment and supplies
- Transportation to medical appointments
For a comprehensive list of deductible medical expenses, refer to IRS Publication 502.
These extra medical costs can sometimes push you over the limit needed to deduct health insurance taxes. This is most likely if you itemize deductions and track each eligible expense.
Health Sharing Plans and Tax Deductions
Health sharing plans can significantly lower your monthly health costs, but they’re not considered tax-deductible for individuals.
The IRS does not treat health sharing contributions as ACA-qualified health insurance. As a result, contributions are not deductible as a personal medical expense.
However, business owners have a limited deduction opportunity:
- If your business pays into a health sharing plan for employees, you may deduct those payments as a normal business expense.
- The employee must report these payments as taxable income. Traditional health insurance is usually tax-free for the employee.
- If you own the business and work as an employee, you can do this. Extending the same benefit to staff may allow the business to deduct the contribution as a business expense.
While you may not get a tax break as an individual, many people still find health sharing plans a good value. Lower monthly costs help, especially if you are in good health.
Do Small Businesses Get a Tax Credit for Offering Health Insurance?
Yes, small businesses that meet certain rules can qualify for a health insurance tax credit. The credit can be up to 50% of the premiums they pay for employee coverage. They must buy coverage through a SHOP (Small Business Health Options Program) plan.
To be eligible in 2025, your business must:
- Have fewer than 25 full-time employees (or equivalent)
- Pay average annual wages of $56,000 or less
- Cover at least 50% of employees’ health insurance premiums
- Offer a qualified SHOP plan to all full-time employees
You don’t need to offer coverage to part-time workers or their dependents to qualify.
The smaller your business, the larger the potential credit. Businesses with fewer than 10 employees and average wages under $27,000 may receive the full 50% credit.
This credit can help cover benefit costs. It makes it easier for small employers to compete. They can better attract and keep workers against larger companies.
For more information, visit the IRS Small Business Health Care Tax Credit page.
Long-Term Care Insurance Premiums
Are health insurance premiums tax-deductible for long-term care?
If you’re self-employed, the answer is yes up to age-based annual limits set by the IRS. These deductions are part of the self-employed health insurance deduction. The deduction applies whether or not you choose to itemize.
For 2025, the maximum deductible amounts are:
- $470 for ages 40 or younger
- $880 for ages 41–50
- $1,760 for ages 51–60
- $4,980 for ages 61–70
- $5,960 for ages 71 and older
To qualify, the policy must meet IRS requirements for long-term care coverage. Keep in mind, these amounts show the maximum deduction per person. If you cover a spouse or dependent, their age sets their limit.
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Maximize Your Tax Savings With the Right Coverage
Navigating what makes health insurance tax-deductible does not need to be confusing.
Understanding what is and is not deductible can lead to real savings at tax time. This is especially true for self-employed individuals, small business owners, and those exploring alternatives like health sharing.
You do not have to figure this out without guidance. The team at HSA for America is ready to assist. We walk you through your options and explain how different plans affect your taxes. From there, we match you with a solution that fits your budget and goals.
Talk to one of our Personal Benefits Managers today. Get expert help choosing the right health coverage for 2025 and beyond.
Frequently Asked Questions
Q: Can small businesses get a tax credit for offering health insurance?
A: Yes, small businesses that meet IRS rules can qualify for a tax credit. The credit can be up to 50 percent of premiums paid for employee coverage.
To qualify, the business must have fewer than 25 full-time employees. It must pay average annual wages below a set limit. It must also offer a qualified SHOP plan.
Q: Are health insurance payments tax deductible?
A: It depends on your current job situation. Self-employed individuals can deduct 100 percent of their premiums directly on their tax return without itemizing. Employees with job-based coverage already get pre-tax premiums. People who buy their own plan can only deduct costs above 7.5% of adjusted gross income.
Q: Are health sharing plan contributions tax deductible?
A: The IRS does not treat health sharing contributions as ACA-qualified health insurance. So, you cannot deduct them as a personal medical expense. Business owners who pay into a health sharing plan for employees may deduct those payments as a standard business expense.
