A:

The deductible you pay on your health insurance policy may be tax-deductible if you meet certain conditions. However, whether this deduction is more advantageous than taking the standard deduction varies from person to person.

What Is a Deductible?

An insurance deductible is simply the amount of money you, the insured, must pay before the insurance company pays costs. Depending on the type of insurance and specific plan provisions, deductibles may apply to the policy annually or per claim.

When Are Medical Expenses Tax-Deductible?

For many people, medical expenses can eat up a substantial portion of annual income. To help ease this burden, the Internal Revenue Service, or IRS, allows taxpayers to deduct the cost of medical expenses that exceed 10% of their adjusted gross income, or AGI, for the year.

For example, if you are under 65 and your AGI is $50,000, then any medical expenses exceeding $5,000 are tax deductible. Medical expenses can include your deductible, out-of-pocket payments, premiums, testing costs and medical equipment purchases.

Exclusions

Only those expenses not reimbursed by your insurance company are eligible. If you participate in an employer-sponsored health insurance plan, your contributions to the plan premium made through payroll deduction are most likely made with pretax dollars, reducing your total taxable income. This means you have already received a tax benefit for this premium expense, so deducting your premium payments is double-dipping. In addition, some types of medical expenses are excluded, such as cosmetic surgery.

Claiming Your Deduction

To claim a medical expense deduction, including deductible and premium costs, you must itemize your tax deductions instead of taking the standard deduction. Whether this is the most beneficial depends on your expenses.

For example, the standard deduction for single persons in 2015 is $6,200. Using the above example and assuming no other possible deductions, this means you need to have unreimbursed medical expenses of at least $11,200 for the year to reap the benefits of this deduction.

RELATED FAQS
  1. What happens if my insurance claim falls below the deductible level?

    Find out what happens if your insurance claim falls below the level of your deductible, including the basics of deductibles, ... Read Answer >>
  2. What is the range of deductibles offered with various health insurance plans?

    Explore the wide range of deductibles available on various health insurance plans, and learn factors to consider when selecting ... Read Answer >>
  3. Which is better for tax deductions, itemization or a standard deduction?

    Each deduction that you claim may result in a decrease in the amount of taxes that you owe. However, whether you receive ... Read Answer >>
  4. How do I know whether to itemize deductions or take the standard deduction?

    Taking the standard deduction is the easiest and most common method chosen by filers, but many taxpayers may wind up paying ... Read Answer >>
Related Articles
  1. Taxes

    Insurance-based Tax Deductions You May Be Missing

    Knowing the tax deductions you're entitled to can make or break your bank account. Do you know about all these insurance-related deductions?
  2. Taxes

    An Overview of Itemized Deductions

    Itemized deductions will mostly stay the same for 2017 tax year (medical deductions improve under the new tax bill). Big changes start in 2018.
  3. Taxes

    Do Your Research Before Claiming These Deductions

    Be sure to read the fine print about any deduction or credit that you’re planning to claim.
  4. Taxes

    The Most Overlooked Tax Deductions

    The receipts you cram into your wallet could be replaced with cash come tax season.
  5. Taxes

    Why You Should Itemize Your Tax Deductions

    This strategy of moving your tax deductable payments and donations to the following year could mean hundreds more on your return.
  6. Financial Advisor

    20 Medical Expenses You Didn't Know You Could Deduct

    To lower your tax bill, be sure not to miss out on these commonly overlooked medical tax deductions.
  7. Taxes

    10 Tax Benefits for the Self-Employed

    Running your own business has both personal and financial perks.
  8. Financial Advisor

    Tips for Reducing Health Insurance Expenses

    For many self-employed people, health insurance premiums can make up a hefty percentage of their budget. Here are some tips on how to deduct them.
  9. Taxes

    Top Tax Deductions For Brokers

    If you are paying out of pocket, you can make your business expenses work for you at tax time.
  10. Tech

    Top Tax Tips to Deduct Investment Management Fees

    Investment expenses can be deducted by those who meet three main criteria. Here's what they are and how they work.
RELATED TERMS
  1. Above The Line Deduction

    Above the line deductions are certain types of deductions that ...
  2. Tax Deduction

    A deduction from gross income that arises due to various types ...
  3. Interest Deduction

    Interest deduction causes a reduction in taxable income or revenues ...
  4. IRS Publication 936

    A document published by the Internal Revenue Service (IRS) that ...
  5. IRS Publication 521 - Moving Expenses

    A document published by the Internal Revenue Service (IRS) outlining ...
  6. IRS Publication 502: Medical And Dental Expenses

    A document published by the Internal Revenue Service detailing ...
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  3. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  4. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  5. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  6. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
Trading Center