Most people cannot deduct medical insurance premiums on their personal tax return

If you buy health insurance on your own and pay the premiums yourself, you generally cannot deduct them as a tax deduction on your federal return. The IRS does not allow this deduction for most individuals, even if the premiums are substantial and eat up a large part of your income.

The main exception is self-employed people. If you are self-employed — meaning you run your own business and do not have an employer — you may deduct health insurance premiums you pay for yourself, your spouse, and your dependents. This deduction appears on Form 1040, not on Schedule C, and it reduces your adjusted gross income.

If your employer pays your premiums, those payments are not counted as income to you, which is a tax benefit, but it is not the same as a deduction you claim yourself.

Key Takeaways

  • Self-employed people can deduct health insurance premiums they pay out of pocket, but employees generally cannot.
  • Employer-paid premiums are not counted as your income, which is a tax advantage, but you do not claim a deduction for them.
  • If you are unemployed and receive unemployment benefits, you may be able to deduct premiums paid while you were collecting those benefits.
  • Medical expenses that exceed 7.5 percent of your adjusted gross income can be deducted as itemized deductions, but insurance premiums do not count toward this threshold.
  • Health Savings Account contributions and certain long-term care insurance premiums have their own deduction rules separate from regular health insurance.

Self-employed deduction rules and income limits

To claim the self-employed health insurance deduction, you must have net self-employment income for the year. You cannot deduct more in premiums than you earned from your business. If your business had a loss or broke even, you cannot use this deduction.

The deduction applies to premiums you pay for health, dental, and vision coverage. It also covers long-term care insurance premiums, but only up to certain limits that the IRS sets each year based on your age. Those limits change annually.

You claim this deduction on line 21 of Form 1040. You do not need to itemize deductions to use it — it reduces your income before the standard deduction is applied. This makes it valuable even if you take the standard deduction instead of itemizing.

Unemployed workers and COBRA coverage

If you received unemployment benefits during the year, you may have paid health insurance premiums while collecting those benefits. The IRS allows you to deduct 60 percent of those premiums as an adjustment to income on Form 1040.

This rule applies whether you bought coverage on your own, continued coverage through COBRA (the federal law that lets you keep your employer's health plan after you leave the job), or used another source. You do not need to be self-employed to claim this deduction — it is available to anyone who was unemployed and paid premiums during that time.

You report this deduction on line 21 of Form 1040 as well. Keep records of the months you received unemployment and the premiums you paid during those months, because the IRS may ask for proof.

Medical expenses and the itemized deduction threshold

Health insurance premiums do not count toward the medical expense deduction, even though they are health-related costs. The IRS treats insurance premiums separately from other medical expenses.

If you itemize deductions, you can deduct medical and dental expenses that exceed 7.5 percent of your adjusted gross income. This includes doctor visits, prescriptions, hospital stays, and certain medical equipment — but not insurance premiums. The threshold is high, so most people do not benefit from this deduction.

For example, if your adjusted gross income is $60,000, you would need medical expenses over $4,500 to deduct anything. Even then, you can only deduct the amount above that 7.5 percent floor.

Health Savings Accounts and long-term care insurance

If you have a Health Savings Account (HSA), you can contribute pre-tax money to pay for medical expenses, including some insurance premiums. HSA contributions reduce your taxable income and the money grows tax-free if used for medical costs.

Long-term care insurance has its own rules. Self-employed people can deduct premiums as part of their health insurance deduction, up to age-based limits. Employees cannot deduct long-term care premiums, but some employers offer them as a benefit that is not counted as income.

Medicare premiums paid by people over 65 are not deductible on the federal return, though some states offer their own deductions for certain Medicare costs. Check your state tax rules if you pay Medicare premiums.

What to do if you are an employee

If your employer offers health insurance and deducts premiums from your paycheck, those premiums are already excluded from your taxable wages. You do not claim any deduction — your employer handles it by not including the premiums in your W-2 income in the first place.

If you pay part of the premium and your employer pays part, only the employer's share is excluded from your income. Your share comes out of your after-tax pay, so you cannot deduct it.

Some employers offer flexible spending accounts (FSAs) or dependent care accounts where you can set aside pre-tax money for medical or dependent care costs. These accounts reduce your taxable income automatically, similar to an HSA.

State tax rules may differ

Some states allow deductions or credits for health insurance premiums that the federal government does not. A few states offer tax credits for people who buy coverage on their own or through the marketplace.

Check your state's tax instructions or contact your state tax authority to learn what is available where you live. State rules change, and what applies in one state may not explore in another.

Frequently Asked Questions

Can I deduct health insurance premiums if I am an employee?

No. Employees cannot deduct health insurance premiums on their personal tax return. If your employer deducts premiums from your paycheck, that money is already excluded from your taxable income — you do not claim a separate deduction.

What if I am self-employed and have no income one year?

You cannot deduct health insurance premiums if you have no self-employment income or a net loss. The deduction cannot exceed your net profit from your business. You may be able to carry forward unused premiums to a year when you have income, depending on your situation.

Does COBRA coverage count toward the medical expense deduction?

COBRA premiums do not count toward the 7.5 percent medical expense threshold. However, if you were unemployed and paid COBRA premiums while receiving unemployment benefits, you can deduct 60 percent of those premiums as an adjustment to income.

Can I deduct Medicare premiums?

Medicare premiums are not deductible on your federal tax return. Some states offer their own deductions or credits for Medicare costs, so check your state's rules. If you have a Health Savings Account, you can use that money to pay Medicare premiums tax-free.

What is the difference between a deduction and an exclusion?

An exclusion means the money never counts as income in the first place — like employer-paid premiums. A deduction reduces your income after it has been counted. Self-employed people get a deduction; employees get an exclusion. Both lower your taxes, but they work differently.