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Can I deduct my exchange premiums when I file taxes next year?

  • By
  • healthinsurance.org contributor
  • November 17, 2015

Q. I’ve always had employer-sponsored health insurance, and I believe the premiums were tax deductible. But I left that job earlier this year, and have now purchased individual health insurance in the exchange. Do I get to deduct the premiums I’m paying when I file my taxes next spring?

A. If you’re self-employed, yes. If not, it will depend on how much you spend on medical expenses during the year.

When you had employer-sponsored health insurance, your share of the premium was probably payroll deducted on a pre-tax basis, and thus your W2 reflected that fact. You did not have to deduct the premiums when you filed your taxes, because they were not included in the taxable income reported to you on your W2.

Now that you’re buying your own health insurance, there are several things to keep in mind:

  • If you’re self-employed, you’re allowed to deduct your health insurance premiums.
  • If you buy your own health insurance but you’re not self-employed, your premiums simply count as medical expenses. The IRS allows you to deduct medical expenses that exceed 10% of your adjusted gross  income (a transitional rule in place until the end of 2016 allows you to deduct medical expenses that exceed 7.5 percent of your AGI if you or your spouse are over 65). Keep track of all your medical expenses throughout the year, as they can add up quickly.
  • If you qualify for an income-based tax credit (subsidy) to lower your premiums, make sure that you continue to obtain your coverage through the exchange in your state. If you switch to an off-exchange plan, you wouldn’t be eligible for a subsidy to offset the cost of your coverage.
  • If you receive a subsidy to offset the cost of your health insurance premiums in the exchange, you cannot “double dip” at tax time. In that case, if you’re self-employed or if your total medical expenses are high enough to allow for a deduction, you can only deduct the actual portion you paid, not the portion that was subsidized.

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