Tax-Deductible Health Insurance
Q: Do I need to buy an HSA health insurance plan to get the tax deduction benefits on the premium payments?
A: With an HSA plan, you do not get a tax-deduction on the premium payment. You can receive a tax-deferment on the amount that allowable amount that you place into a Health Savings Account. You need to have an HSA eligible health plan in order to open this type of savings account, which works kind of like an IRA. A tax-deferment is different than a tax deduction because you will need to reclaim as income any money you withdraw from the Health Savings Account, unless those withdrawals are made to pay for eligible medical expenses.
If you are self–employed and you show a net profit for the tax year, or if you are a partner in a partnership or a shareholder in an S corporation if you hold more than a 2% share in that corporation, you may be able to deduct 100% of the amount you pay for medical insurance for yourself and your spouse and dependents. Some medical expenses are also deductible and you can include your health insurance premiums as a medical expense in your itemized deductions. If you are not self-employed, your insurance premiums are not tax-deductible unless they exceed 7.5% of your income. If, at anytime during the year, you or your spouse is eligible to join an employer-sponsored group health plan, you may not deduct your insurance premiums for these months.
President Bush is proposing a change to the health insurance tax deduction laws that would allow for a $7,500 deduction for individuals and $15,000 for families. This proposed tax change would be available if you buy your own insurance or receive medical insurance through your employer. This law, if passed, would also require people with total health insurance premiums in excess of these deductible amounts to pay a tax-penalty on the difference. His proposal also includes an increase in the allowable contributions amounts into a Health Savings Account.
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