What Medical Insurance Can I Deduct?

You can deduct qualified medical insurance for yourself, your spouse, and those who qualify as your dependents (including those whom you actually cannot claim as dependents due to income limitations ONLY). Qualified medical insurance includes any insurance that will pay your otherwise-deductible medical bills, and also includes dental and vision insurance plans. It does not include insurance that pays you a flat dollar amount when you are disabled. It includes Medicare Part B (withheld from Social Security benefits), but not Medicare Part A.

Medical insurance can be deducted if it is withheld by your employer, but ONLY if that is done with after-tax dollars. If you participate in a cafeteria or similar plan in which benefits are paid with pre-tax dollars, medical insurance paid through those plans are not deductible, since you were never taxed on those amounts to begin with.

Medical insurance - meeting the above criteria - can generally be deducted as a medical expense, on Form 1040, Schedule A. Together with other medical expenses, the total in this category that can actually reduce your income is limited to its excess over 7% of your adjusted gross income (AGI).

One exception: If you have income from self-employment (including wages received as shareholder-employee of an S-corporation), you can claim an above-the-line deduction (from gross income to adjusted gross income) for the lesser of 30% of your medical insurance premiums or your self-employment income. The remainder carries to Schedule A as a medical expense.

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