You know you can deduct some medical expenses from federal income taxes, but you don’t know the details. Are health insurance premiums tax deductible 2016?
Medical bills can be a huge expense, so the Internal Revenue Service gives people a break so they can get some of that money back. According to the latest available Internal Revenue Service statistics, approximately 10.2 million US households have deducted a total of $ 85.3 billion in medical expenses in their 2012 federal tax returns. Many Americans can also make similar state tax deductions.
Who qualifies for treatment deductions?
The internal revenue code has two large rules that can severely limit who really qualifies for exemption from medical expenses:
- In general, you must calculate the deductions on Form A 1040 instead of taking the “standard deduction” if you want to take a break in medical expenses. If what you plan to deduct for everything (from medical bills to mortgage interest) is less than the standard deduction (USD 6,400 for singles and USD 12,600 for married partners in 2015), There is no point in specifying.
- Most taxpayers can only deduct acceptable medical expenses that exceed 10 percent of “Adjusted Gross Income” (AGI). This is the amount you earn in a given year from wages, investments and other sources, less what you paid for alimony, interest on student loans, and a few other things. So, if a marriage has USD 100,000 AGI and USD 10,500 eligible medical expenses, they can only deduct USD 500 – USD 10,500 minus USD 10,000 (10 percent of their USD 100,000 AGI). Note: In 2015 and 2016, seniors aged 65 or over may deduct any medical expenses above 7.5% AGI.
The only taxpayers who pass both tests are usually those who bear extremely high costs of treatment in relation to income. Often these are only the elderly, the unemployed, people on low incomes or people with high medical bills due to serious illness, in vitro fertilization or childbirth.
Tax deduction and pre-tax remuneration
Employees who pay for health insurance in dollars before tax through deductions from the payroll are not entitled to continue deducting the same expenses. Check your payslips if you are unsure how you pay for the insurance available from your employer. You use dollars before tax if your insurance deductions are made before your employer calculates your tax deduction.
This is not necessarily a bad thing. Paying for health insurance as a pre-tax deduction is actually more beneficial and will probably save you more money than deducting your deducted medical expenses. Pre-tax health benefits reduce your taxable salary, and the income tax, social security, and Medicare tax you have to pay is a percentage of that taxable salary.