Health Insurance Tax Deductions

by Mark Kennan

To help taxpayers with medical bills, the government allows several deductions for healthcare-related costs. Each of these deductions has specific qualifications you must meet to be able to take it on your take returns. You should keep records of all of your medical expenses to make totaling your deductions easier and so you can prove your deduction if audited.

Deduction for Medical Expenses

To take a deduction for medical expenses, you must itemize your deductions rather than taking the standard deduction. You note these expenses when you total your itemized deductions on a Schedule A, and then the total for these deductions goes on line 40 if your 1040 form. If your medical costs exceed 7.5 percent of your adjusted gross income, you may deduct the amount that exceeds this threshold. For example, if your adjusted gross income is $45,000 and your medical bills for the year are $5,375, you can deduct $2,000. Medical expenses include preventative care, treatment and prescription drugs for both medical and dental ailments for yourself, your spouse or any dependents. If you paid for medical insurance out of your pocket, you may also deduct those expenses. You can also deduct mileage expenses for driving to medical care. For 2009, this rate was $0.24 per mile. For example, if you drove 100 miles to and from hospitals for healthcare, you could deduct $24 from your income.

Self-Employment Medical Deductions

Self-employed individuals can take a special deduction for health insurance costs that they pay for themselves and their families. This is an above-the-line deduction, meaning you can take it whether or not you take the standard deduction. To take this deduction, record it on line 29 of your 1040 form. If you count any medical expenses toward the self-employment deduction, you cannot count them again as an itemized deduction. You are not eligible for this deduction if you or your spouse has access to an employer-sponsored plan through work.

Health Savings Accounts

If you have a high-deductible health insurance plan, you are eligible to take part in a health savings account. This is a special tax-advantaged plan that allows you to contribute pre-tax dollars to save for future medical expenses. To claim this deduction, fill out Form 8889, and record your deduction on line 25 of your 1040 form. Any contributions you make to your account up to the annual limit are tax deductible. For 2009, the contribution limit is $3,000 for an individual and $5,950 for a family. The contributions grow tax free and are withdrawn tax free as long as they are used for medical expenses. These accounts do not expire. If you die before using all of the money in your account, it passes to your spouse as if it were his or her health savings account.


About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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