Health insurance can provide several tax-saving opportunities in the United States.
Here are five ways it can help you save on taxes
Premium Tax Deduction
If you purchase health insurance through the Health Insurance Marketplace and your income falls within certain limits, you may be eligible for the Premium Tax Credit. This credit can help lower the cost of your monthly insurance premiums. You can choose to apply the credit directly to your premiums or receive it as a refund when you file your federal income tax return.
Health Savings Account (HSA)
If you have a High Deductible Health Plan (HDHP), you can contribute to an HSA. Contributions to an HSA are tax-deductible as they reduce your taxable income for the year. Plus, the money in your HSA can be used tax-free for qualified medical expenses. It’s a great way to save for healthcare costs while lowering your tax liability. These are also available for self-employed individuals and freelancers through platforms like Opolis which is specifically designed to provide employer services to this population.
Flexible Spending Account (FSA)
Some employers offer FSAs as part of their benefits package. You can contribute pre-tax dollars to an FSA, which can then be used for qualified medical expenses. This reduces your taxable income for the year. However, be aware that FSAs typically have a “use it or lose it” rule, meaning you may forfeit unused funds at the end of the plan year.
If you have significant medical expenses that exceed a certain percentage of your adjusted gross income (AGI), you may be able to deduct them as itemized deductions on your federal income tax return. Qualified medical expenses can include insurance premiums, prescription medications, doctor’s visits, and more. Be sure to check the IRS guidelines for the current threshold, as it can change from year to year.
Self-Employed Health Insurance Deduction
If you’re self-employed, you can deduct the cost of health insurance premiums for yourself, your spouse, and your dependents as an adjustment to income. This deduction is taken on the front page of your Form 1040, reducing your overall taxable income.
It’s important to note that tax laws and regulations can change, so it’s a good idea to consult with a tax professional or use tax software to ensure you’re taking advantage of all available tax-saving opportunities related to health insurance. Additionally, state tax laws may vary, so be sure to consider your state’s specific regulations as well.