If an individual pays for an exchange plan, how do they pay for the premium pre-tax as would someone with an employer plan?

  • By
  • healthinsurance.org contributor
  • January 2, 2015

Q. If an individual pays for an exchange plan, how do they pay for the premium pre-tax as would someone with an employer plan? This can be a substantial cost impact for the middle-class taxpayer who doesn’t qualify for the tax credit/subsidy. If you itemize, you do not get the full benefit that other tax payers get. Am I missing something?

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A. If you’re self-employed, you can generally deduct the full amount you pay in premiums without having to itemize your deduction. (Here’s more the self-employed health insurance deduction.)

But if you’re not self-employed, the only way to deduct your health insurance premiums is to itemize your deductions. You can only deduct your total medical expenses that exceed 10 percent of your AGI, although health insurance premiums count towards your total medical expenses. So as an example, if your AGI is $50,000 and your total medical expenses are $8,000 for the year (including health insurance premiums), you’d be allowed to deduct $3,000 in medical expenses as part of your itemized deductions on schedule A.

This is certainly an issue that has come up in health reform discussions many times over the years, and it’s undeniable that employees who must purchase their own health insurance are at a disadvantage tax-wise. Future legislation could change this, but for now, individual health insurance premiums are generally not deductible without itemizing unless you’re self-employed.

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