Many employees pay some or all of their own health insurance premiums through a group plan. In most cases, employers remove your premium portion before you receive a paycheck. This approach means that your premiums are pre-tax dollars. It is rare that you would pay premiums through an employer plan and itemize the insurance deduction on a tax return.
Medical Expense Deductions
Health insurance premiums are a type of medical expense. Medical costs are tax-deductible, though to claim certain costs on your tax return, you have to itemize your deductions. Typically, only medical costs that exceed 10 percent of your adjusted gross income reduce your taxable income obligation. Unless you have significant health conditions, a typical full-time worker wouldn't invest that much in medical costs beyond insurance premiums.
Group health, disability, life insurance and flexible spending account dollars are all commonly paid pre-tax through your employer's payroll. This process is both convenient and economically beneficial. Essentially, taking your expenses in these areas out before your wages are taxed reduces your tax obligation. If you earn $3,000 gross in a month and your health premium portion is $300, the employer takes that off the top. Thus, your taxable wages are then $2,700, less any other amounts deducted.
No Double Dipping
When you have pre-tax dollars removed for health premiums, you already get a tax benefit. You also get the advantage of not having to itemize the premiums on your return. However, you can't double dip. This concept means that you can't get both the pre-tax dollar benefit and make an additional deduction claim for your premiums when you file taxes. In essence, you would ask for the same deduction twice.
Though rare, some employers may remove your premiums post-tax if you request that they do so. A post-tax deduction means your premium amount is removed after your gross wages are taxed. In this case, you could claim the deduction on your return. Rarely is this move beneficial to you, though. If you pay for a non-employer health plan, you would typically have to claim the insurance deduction as part of your medical expenses when you file.
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