Close Close

Life Health > Health Insurance > Your Practice

How to navigate health care tax breaks

Your article was successfully shared with the contacts you provided.

As health insurance professionals, you are most likely well aware of your ability to write off certain qualified health care expenses during tax time. Remember though — not all of your consumers are meticulous itemizers like you. Fortify your customer service approach by informing consumers about their health care cost deduction options. You may have all of the details about this intricate topic committed to memory, but just as a refresher, let’s talk about it.  

While most Americans are aware that they can deduct things like charitable giving and mortgage interest, many are unaware of the health care costs deduction. A study done in 2012 by found that 81 percent of those surveyed had paid out-of-pocket for medical care, but only 34 percent had plans to deduct those costs. The rules about deducting health care costs can be a little confusing, so let’s go over the current state of affairs.


Tax payers are only allowed to deduct medical expenses that are paid out-of-pocket and exceed 7.5 percent of your Adjusted Gross Income (AGI). Let’s illustrate just how that works:  Dan’s AGI is $40,000 and he spent $10,000 last year on health care costs.

Math time! $40,000 (Dan’s AGI) x 7.5 percent = $3,000 $10,000 (Dan’s total medical costs) – $3,000 = $7,000.

Dan can deduct $7,000 of his medical expenses for 2012.

This is the last year that Dan can get this particular tax break, however, because the regulations are changing for 2013. In order to deduct medical expenses for 2013, his medical costs will have to exceed 10 percent of his AGI, as opposed to 7.5 percent. That’s quite a difference.

Those who are 65 or older before 2013 comes to an end will be allowed to stick to the current percentage rate of 7.5 percent of AGI, at least through 2016.

Types of deductible health care costs

The IRS provides a comprehensive list of all the health care costs that are eligible for deduction. Some of them might take your consumers by surprise:

  • Prescription drugs costs
  • Acupuncture
  • Costs for prescription eye glasses
  • Payments for wheelchairs and crutches
  • Transportation (taxi, bus, and train fare to and from the doctor or hospital)

Health care costs that cannot be deducted

Let them down easy when they ask if they can deduct the cost of a face-lift, tummy tuck or nose job. Any cosmetic procedure that was not necessary is off limits.

Health care costs for other people

Medical costs incurred for dependants definitely qualify for deduction, but what about non-dependants? Those costs may be deductible, as well. Americans can deduct the amount of money paid on behalf of their parents, for example. They can also deduct medical costs for a non-relative, as long as they have lived together for a full year.

Self-employed Americans

Those who are self-employed are allowed to deduct the cost of their health insurance premiums, a benefit that is not extended to the rest of the population. However, premiums are only tax deductible for months when neither you nor your spouse was eligible for coverage through an employer. Also, the deduction amount cannot exceed your business’s earned income.

With health reform almost fully in effect, professionals working within the health insurance space need to be on top of industry news more than ever. A flood of newly eligible consumers means increased competition among carriers and agents. Knowing how to respond with authority when somebody throws a curve ball question can only put you ahead of the game.

See also:

10 life insurance tax facts you need to know

10 estate planning tax facts you need to know

12 worst pieces of tax advice from financial planners


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.