8800 / Are premiums paid by a taxpayer for personal health insurance deductible?

A taxpayer may deduct premiums paid for medical care insurance (including hospital, surgical, and medical expense reimbursement coverage) as a medical expense to the extent that, when added to all other unreimbursed medical expenses, the total exceeds 7.5 percent of a taxpayer’s adjusted gross income (the 7.5 percent threshold was made permanent in 2020). The threshold is also 7.5 percent for alternative minimum tax purposes.

The Affordable Care Act increased the threshold to 10 percent of a taxpayer’s adjusted gross income for taxpayers who are under the age of 65 effective in tax years beginning January 1, 2013. For taxpayers over the age of 65, the threshold for deductibility remained at the 7.5 percent level from years 2013 to 2016. The 2017 tax reform legislation reduced the threshold to 7.5 percent for all taxpayers for 2017 and 2018 (that threshold was later made permanent).

A taxpayer must itemize his or her deductions in order to take a deduction for medical care premiums or any other medical expenses.¹ The reduction of itemized deductions for certain high-income individuals is not applicable to medical expenses deductible under IRC Section 213 (itemized deductions are not reduced for high income taxpayers for 2018-2025 under the 2017 tax reform legislation).²

The only premiums deductible as a medical expense are for medical care insurance. Premiums for non-medical benefits, such as disability income, accidental death and dismemberment, and waiver of premium under a life insurance policy, are not deductible.

The definition of “medical care” generally includes amounts paid for any qualified long-term care insurance contract or for qualified long-term care services and, thus, these expenses may be deducted, subject to certain limitations.³

Mandatory contributions to a state disability benefits fund are not deductible under the provisions applicable to medical expense deductions, but are deductible as taxes.⁴ Employee contributions to an alternative employer plan providing disability benefits required by state law are nondeductible personal expenses.⁵

If a policy provides both medical and non-medical benefits, a deduction will be allowed for the medical portion of the premium only if the medical charge is reasonable in relation to the total premium. In order to take advantage of this bifurcated approach, the medical portion must be stated separately in either the policy or in a statement furnished by the insurance
company.⁶

Similarly, where a premium provides for medical care for individuals other than the taxpayer, spouse and dependents (such as with automobile insurance), a deduction will not be allowed unless the policy separately states the portion that is applicable to the taxpayer, spouse and dependents.⁷

If a policy provides only indemnity for hospital and surgical expenses, premiums qualify as medical care premiums even though the benefits are stated amounts that will be paid without regard to the actual amount of expense incurred by the taxpayer.⁸ Premiums paid for a hospital insurance policy that provides a specific payment for each week the insured is hospitalized, not to exceed a specified number of weeks, regardless of whether the insured receives other payments for reimbursement, do not qualify as medical care premiums and are not deductible.⁹

Because the benefit under a critical illness insurance policy is payable regardless of any actual medical expenses incurred or reimbursement received, the premiums paid for this type of policy would appear not to be deductible.¹⁰

A deduction also will be denied for employees’ contributions to a plan that provides that employees absent from work because of sickness are to be paid a percentage of wages earned on that day by co-employees.¹¹

A taxpayer may deduct premiums paid for a policy that reimburses the taxpayer for the cost of prescription drugs as medical care insurance premiums.¹²

Medicare premiums, paid by persons age 65 or older, under the supplementary medical insurance or prescription drug programs are deductible as medical care insurance premiums. However, the taxes paid by employees and self-employed individuals for basic hospital insurance under Medicare are not deductible.¹³

If a taxpayer prepays premiums before the taxpayer is 65 for insurance that will cover medical care for the taxpayer, spouse, and dependents after the taxpayer is 65, these premiums are deductible when paid provided they are payable on a level-premium basis for 10 years or more or until age 65, but in no case for fewer than five years.¹⁴

Payments made to an institution for the provision of lifetime care are deductible under IRC Section 213(a) in the year paid to the extent that the payments are properly allocable to medical care, even if the care is to be provided in the future or possibly not provided at all.¹⁵ The IRS has stated that its rulings should not be interpreted or expanded to permit a current deduction of payments for future medical care (including medical insurance provided beyond the current tax year) in situations where future lifetime care is not of the type associated with the ruling at issue.