Some people are unaware  of all the tax deductions available to them, and might be missing out on great tax-savings opportunities. Remember, the more you can deduct, the better your income tax refund check will be. Medical bills can add up to a lot of money spent throughout the year, and are often overlooked as a tax deduction. But are health insurance premiums tax deductible? It depends on if you meet certain qualifications.

Employer’s Insurance

When you have a health insurance plan through an employer, your premiums are most likely already tax-free. In other words, you will not be able to write off your health insurance premiums. 

Self-Employed Insurance

Most self-employed individuals can take a deduction for health insurance premiums they pay for themselves and their dependents. So, if you own your own business, you can deduct the entirety of your premium payments. You can only do so as long as you are not eligible to get insurance from another employer’s plan. 

The deduction for self-employed people is limited by the amount of your business income. You cannot deduct more than the amount of income your company makes.

Self-employed people can deduct health insurance premiums directly on Form 1040 (Line 29 on returns). You deduct all other qualified medical expenses on Schedule A, Line 1.

The 10% Rule Of Medical Deductions

Whether you are on an employer’s insurance or your own, you can itemize medical expenses when you are doing your taxes, but there are some rules. The main rule is the 10% rule. If you paid for insurance on your own using after-tax dollars, then you can deduct some of your premiums paid. You are allowed to deduct any unreimbursed healthcare expenses you paid for yourself or your family. However, you can only do this if it is greater than 10% of your adjusted gross income. 

So, you can deduct premiums paid, and out-of-pocket costs such as doctor visits, deductibles, surgeries, and dental and vision care. If your income for the year was $40,000, then you can deduct qualified expenses that exceed $4,000 (10% of your income). If your medical expenses were, for example, $7,000, then you can deduct $3,000 from your taxable income.

To reiterate, generally if you have your employer’s insurance plan, then you are paying for premiums tax-free already. This means that you cannot deduct health insurance premiums. But, you are eligible to deduct them if your total healthcare costs go over 10% of your adjusted gross income, or if you are self-employed.

If you offer health insurance to your employees, it can be costly, but luckily there is a silver lining- the small business health care tax credit! One of the provisions of the Affordable Care Act, ACA, is the Small Employer Health Care Tax Credit which allows certain businesses to save money while offering health insurance to their employees. While it is a great financial saver for businesses, not all businesses can get the tax credit. There are some qualifications that a small business must meet in order to get the health care tax credit.

The Small Business Health Care Tax Credit

This credit allows small businesses to receive a tax credit for paying at least half of their employees health insurance premiums. In the beginning, the small business health care tax credit was not much, ranging only 35% of eligible health insurance premiums. But luckily, over the years it has changed. The tax credit now equates to up to 50% of employer-paid health insurance premiums. 

Small business owners cannot take the tax credit for insurance premiums paid on their own behalf. This includes partnerships, and sole proprietors. 

Qualifications

In order to qualify for the health care tax, a business must meet the following criteria:

1. Have fewer than 25 full-time employees.
2. Your average employee salary must be less than $54,000 as of the 2019 tax year. 
3. You pay at least 50% of your full-time employees health insurance premiums, also known as a “qualifying arrangement.”

Flexible Credit

An advantage of having this kind of credit is that it is flexible. It can be carried toward the next year, or back to other tax years. So, if your business does not owe tax in a certain year, then claiming the tax credit will not do you any good. However, if you owe tax for a prior year, you can apply your credit to that. Or you can choose to keep the tax credit and save it for next year.

Claiming the Tax Credit

The health care tax credit can be calculated and claimed using the Form 8941. The form must be attached to the business’s tax return, and then after it is processed, the credit reduces any income tax the business owes.

Tax-exempt organizations should file Form 990-T. This tax credit is non-refundable, although it can be carried towards either the following or prior tax years. Also, tax-exempt organizations that have no taxable income can qualify for a refund of the credit, as long as it doesn’t exceed their Medicare tax liability and income tax withholding.

Small Business Tax Deductions

If your business does not qualify for the tax credit, there is still hope on saving money. There is a deduction for employee premium payments. Some businesses may be able to get both the deductions and tax credit!

The small business health care tax can help a small business offer their employees health insurance without fearing the great costs. As long as you meet the qualifications to receive the tax credit, then you will be eligible. The fewer employees you have, for example, less than 10 full-time employees who are paid an average of $25.000 or less will get you a bigger credit. And if you do not qualify for the tax credit, at least you can get deductions!

If you are looking to provide health insurance to your employees and want to save money, EZ.Insure can help. We will find a plan that meets your needs financially. We will find the plan that gives you deductions and notify you on whether you qualify for both deductions and the tax credit. Our goal is to save you as much money, while providing you with the best plan. Call 855-677-0157, or email us at replies@ez.insure to speak directly with one of our agents, or enter your zip code in the bar above to get free instant quotes. We will never sell your information to telemarketers as others do.