Calculating Your Insurance Premium

Because Americans do not pay additional taxes on their health insurance premiums, many people wrongly believe that their premiums have no bearing on their income tax costs. Unfortunately, though, that’s not true. How your premiums are paid does play a role in determining how much you owe come tax time.

Employer-Sponsored Premiums

First off, if you take part in an employer-sponsored health care plan, you can enjoy a reduction in your taxable income. Your employer will typically deduct some money from your check each pay period, thereby reducing your total taxable income.   

If you are fortunate enough to have your employer pay for all of your health care overage, then you do not have to include your premiums in your taxable income at all. This is also the case if you pay out of pocket but are later fully reimbursed, making employer sponsored health care plans a smart choice.

Self-Paid Premiums

If you pay your premiums on your own, whether because you are self employed or your employer doesn’t offer the option, then there’s a good chance that your premium costs are still tax deductible.

This, of course, depends on your tax threshold, but in general, any premiums or other itemized medial expenses that go over 10% of your adjusted gross income are considered deductible.

Premium Tax Credit

Finally, be aware that, depending on your income, you may be eligible for the premium tax credit program. If you are enrolled in a health plan through the insurance marketplace, do not qualify for minimum essential coverage, and have an annual income ranging on the 100 to 400% scale of the poverty threshold, you likely qualify.

The amount you will qualify for is dependent on income, so check with your tax advisor to see if and where you fall on the premium tax credit and to ensure you take advantage of all healthcare related advantages for which you are eligible. #TaxCreditPrograms