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Deductible health insurance premiums

Dear Tax Talk,
I was told by my tax adviser at H & R Block Premium that I could not list the cost of my health insurance toward the 7.5 percent of my gross income for a medical deduction. You listed in an answer to someone's question that you can. Help! My tax person checked the tax book. Are you in error, or is my tax adviser and her book wrong?
P.S. She teaches for H & R Block as well.
-- Deborah

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Dear Deborah,
IRS Publication 502 clearly states that medical insurance premiums are a medical expense eligible for deduction as an itemized deduction subject to reduction by 7.5 percent of your adjusted gross income, or AGI. The publication states:

You can include in medical expenses insurance premiums you pay for policies that cover medical care. Policies can provide payment for:

  • Hospitalization, surgical fees, X-rays, etc.
  • Prescription drugs
  • Replacement of lost or damaged contact lenses
  • Membership in an association that gives cooperative or so-called "free-choice" medical service, or group hospitalization and clinical care
  • Qualified long-term care insurance contracts.

You cannot include premiums you pay for:

  • Life insurance policies
  • Policies providing payment for loss of earnings (disability insurance)
  • Policies for loss of life, limb, sight, etc.
  • Policies that pay you a guaranteed amount each week for a stated number of weeks if you are hospitalized for sickness or injury
  • The part of your car insurance premiums that provides medical insurance coverage for all persons injured in or by your car, because the part of the premium for you, your spouse and your dependents is not stated separately from the part of the premium for medical care for others.

Since this is pretty basic stuff, I'm going to assume that there are maybe some facts that you did not describe to me but that your adviser is aware of. Your deduction may or may not be allowed depending on how you pay for your health insurance. If you're an employee and your health insurance premiums are paid under a cafeteria-plan arrangement, then these are pretax dollars and would not count as a medical expense in reaching the 7.5 percent of AGI. In other words, since the medical premiums paid under a cafeteria plan are not considered wages to you (they are not included in your Form W-2), you can't double dip by claiming a deduction.

Alternatively, if you're self-employed or a shareholder in an S corporation, or partner in a partnership, the medical insurance premiums should be claimed as an adjustment to gross income on Line 29 of Form 1040. This treatment is more beneficial than claiming the medical insurance premiums as an itemized medical expense deduction.

If the exceptions above do not apply, then I suggest that you ask your adviser to get a second opinion from someone else in the office. If you're still not satisfied, re-evaluate your relationship with the preparer.

Bankrate.com's corrections policy-- Posted: Nov. 22, 2005
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