Feed aggregator
LoopMe Expands Strategic Advisory Board to Power Agile Innovation
HSBC’s Racquel Oden Named One of American Banker’s 2025 Most Powerful Women in Finance
Wolters Kluwer Introduces New AI-powered Matter Summary Capabilities to TyMetrix 360°
MIT Sloan CFO Summit Presents “How CFOs Lead, Structure, and Manage Change” with CFO keynotes Arm, FedEx, Shopify, and Tapestry
Huge Acquires Creative Studio, Both&Yes, to Scale Intelligent Experiences Amid Accelerated Growth
Anchorage Commodities Investment Business to Become Moorstone
MERGE Growth Trajectory Accelerates with Appointment of Former Meta Content Leader Cait Vlastakis Smith to Head Creative Strategy
Huemor Launches a $100K Website Giveaway to Help One Brand Reach Its Full Online Potential
Pursuit Launches Asset-Based Income Interval Fund to Expand Investor Access to Niche Private Markets
Ongoing Inflation Concerns Are Reshaping Spending Habits of U.S., TD Bank Survey Reveals
Health Insurance, Expenses, and Taxes
While often difficult to understand, company healthcare costs can sometimes become a source of tax reduction. Here is some information to help you understand when you can and cannot deduct health care premiums and medical expenses.
It is best to consult a professional advisor to determine how your particular situation can be best integrated into your tax regimen.
Health care costs can be substantial, but it is possible to find some relief in the tax code. Insurance premiums and many medical expenses may be tax-deductible, provided they meet certain criteria. Managing your health expenses can help you reach your company’s financial goals.
Here are some things to know about health insurance and taxes:
When health insurance premiums are tax-deductible
While most individuals are not eligible to deduct health insurance premiums from their taxes, there are some circumstances to be aware of if you pay for premiums with after-tax dollars. For small business owners or self-employed individuals, there may be different rules that apply. For example, self-employed individuals can often deduct their health insurance premiums directly from their taxable income without having to itemize deductions, provided they report a net profit for the year and are not eligible for any other employer-subsidized health plans.
- If you get insurance in the Health Insurance Marketplace:You can deduct the full cost of your health care premiums from your taxable income, even if you do not itemize your taxes. However, there are two exceptions to this rule:
- If you can get health coverage through a spouse’s plan but choose to go through the health insurance marketplace instead, you are not allowed to deduct the premiums from your taxable income.
- If you do qualify for a premium deduction, any discounts or tax credits you receive through the public marketplace reduce the amount you can deduct from your taxes.
- If you have health insurance through an employer-sponsored plan: While you cannot deduct your monthly premiums, you can deduct out-of-pocket premiums, provided you do not use an HSA to cover those costs. This applies only if you itemize deductions and if your total medical expenses exceed 7.5% of your adjusted gross income for the year. For most people, the amount they pay for their premiums does not meet that threshold.
- If you have health insurance through COBRA: Because you pay the premiums for insurance obtained under COBRA out of your own pocket, these health insurance premiums are also tax-deductible. As with employer-sponsored insurance, however, you can only claim the deduction if you itemize, and only if your total medical expenses exceed 7.5% of your adjusted gross income for the year. If you use HSA funds to pay for COBRA premiums or expenses, these are also not eligible for a deduction.
Tax benefits of an HSA
HSAs are the only investment vehicle that offers a triple tax advantage: contributions are tax-deductible, growth is tax-deferred, and withdrawals are tax-free, if they are used on qualified medical expenses.
Key tax benefits include:
- Any contributions made by you (or someone other than your employer) are fully deductible from your federal income taxes, even if you do not itemize your deductions.
- Any contributions to an HSA made by your employer — including contributions made through a cafeteria plan — will be excluded from your taxable income.
- The interest or other earnings on the assets in the account are tax-free, as are distributions, provided they go to pay for qualified medical expenses.
Because you own your HSA, and because there are no required minimum distributions (RMDs), your account can continue spend the funds.to grow tax-free until you choose to spend the funds.
A couple of notes: I was an early pioneer and advocate of HSAs at a time when there were 144,000 rollover medical savings accounts (MSAs); today, there are over 38 million accounts in the U.S. You must have a qualified high-deductible insurance plan before you set-up and contribute to an HSA. As a small business owner, you can offer HSAs to your employees by partnering with a provider that specializes in managing these accounts and integrating them into your benefits package. This can be a valuable addition to your overall compensation strategy.
When you can deduct medical expenses
Many medical expenses are deductible; however, to be eligible to claim the deduction, you will need to both itemize your taxes and spend a significant portion of your income on health care costs. Plus, you will need to have paid these medical expenses out of pocket (after-tax), not through an HSA (pre-tax).
To qualify for the medical deduction, your unreimbursed medical and/or dental expenses need to exceed 7.5% of your adjusted gross income (AGI) for the year, and you can only deduct those expenses that exceed the 7.5%.
Generally, most Americans do not meet this 7.5% threshold. However, if you have had a significant health event, a chronic health condition, or a condition with unusually high medical needs, it is worth exploring whether you qualify for this deduction.
Deductible medical expenses include, but are not limited to:
- Preventive care
- Mental health services
- Dental and vision insurance premiums
- Long-term care insurance premiums
- Travel and lodging for medical appointments in certain circumstances
Please see the IRS Publication 502 for a list of all medical expenses that qualify. Common deductible expenses for small business owners include premiums for dental and vision insurance, long-term care insurance, and preventive care services. It is important to note that deductibility may depend on meeting specific criteria, such as the 7.5% of AGI rule.
Timing is important to keep in mind: To deduct these expenses, it is important to know when the medical bill is paid, not when the medical procedure or service was performed. For example, if you undergo surgery in this year, 2025 but do not pay the bill until the beginning of 2026, those expenses will be eligible for deduction in the 2026 tax year, not 2025.
Further “bunching or grouping” itemizable medical deductions with a single year may yield a bigger tax benefit. While many medical events cannot be planned ahead of time, certain elective procedures can be. If you are expecting higher spending on medical expenses, consider timing procedures and paying the bill, within a single tax year. It may allow you to obtain maximum impact by itemizing your deductible expenses in certain years, while in other years, taking the standard deduction.
Above are some thoughts for understanding the tax implications of your health care spending, as it is a key element of your overall financial strategy. To take immediate action, consider these next steps: review this year’s medical expenses to identify opportunities for deductions, and evaluate whether you can meet the 7.5% adjusted gross income threshold for medical expense deductions when you file this year’s tax forms. Additionally, consult a tax advisor to explore group plans or the feasibility of timing elective procedures within a single tax year to maximize deductions. For further insights, it is always beneficial to consult a financial and/or tax expert.
