Deducting Medical Expense insurance premiums
You can deduct the amount of premiums you paid that exceed 7.5% of your adjusted gross income--Qualified Long Term Care policies also
Adjusted gross income
Also referred to as net income. Adjusted gross income (AGI) is calculated as your gross income from taxable sources minus allowable deductions, such as unreimbursed business expenses, medical expenses, alimony and deductible retirement plan contribution
Tax considerations for individually owned health insurance
Generally, premiums paid by individuals on personal health insurance are not tax deductible and benefits
received are not taxable.
Employer Group Health Insurance tax considerations
As a general rule, an employer can deduct all premiums paid for health insurance for one or more employees as a business expense. Benefits paid to an employee are NOT taxable except for Disability Income
Employee Group Health Insurance tax considerations
Amounts received by an employee under an employer-provided health insurance policy (group or individual) that reimburses the employee for hospital, dental, surgical and other medical expenses incurred for the care of the employee, the spouse and dependent
Disability Income
Disability Income payments received by an employee from an employer-paid Group Disability Income policy are included in gross income, taxable to the employee and are subject to FICA withholding taxes.
Premiums paid by partners and sole proprietors
Partners and sole proprietors are able to deduct the full
amount paid during the taxable year for insurance providing medical care, including qualified long term care, for themselves, their spouses and dependents
Disability Income policies
For Group policies, premiums are deductible to the employer; benefits are taxable to the employee. For Business Overhead policies, premiums are deductible to the business; benefits are taxable to the business
Section 124 Plans (Cafeteria Plans)
A qualified plan that allows an employees to contribute money into a plan to be used for medical expenses. Employers contribute money into this plan as well. Follow the Use It or Lose It rule
Qualified benefit
A benefit that is not includable in the gross income of the employee, including Flexible Spending Accounts and Health Savings Accounts, accidental death insurance coverage and
group term life insurance coverage not exceeding $50,000
Use It or Lose It rule
Any monies left in the employees account not used by
the end of the year revert back to the company
Cafeteria plan administration
As the employee incurs expenses, that employee applies for reimbursement through a form attached to the bill. When the administrator for the plan issues a check to the employee for the expenses, a statement is also provided that shows the amount remaining
Flexible Spending Accounts (FSAs)
A plan established by the employer that permits the employee to defer pretax earnings into a specifically designated account. From this account, the employee may withdraw funds to pay unreimbursed medical expenses and/or qualified child-care expenses. A c
Medical Savings Accounts (MSAs)
A Medical Savings Account (MSA) is a trust created exclusively for the purpose of paying the qualified medical expenses of the account holder; available to small business (50 or fewer employees) employees and self-employed individuals who have high deduct
MSA income tax considerations
Contributions may be made by either the individual or his small employer. If made by the individual taxpayer, the MSA contributions are deductible from income. If contributions are made by a small employer, they are excluded from the employees income. The
MSA distributions
Distributions from MSAs used to pay qualified medical expenses are not includable in gross income. However, distributions for other reasons are taxable and may be subject to a penalty
Health Savings Accounts (HSAs)
Effective January 1, 2004 the Health Savings Account (HSA)
replaced the Medical Savings Account (MSA). A Health Savings Account is a trust created exclusively for the purpose of paying the qualified medical expenses of account holders under age 65. HSAs a
High deductible health insurance coverage
Those requiring singles to pay at least the first $1,000 in yearly
medical costs, or $2,000 for families
HSA penalties
Money withdrawn from an account for other than qualified purposes is taxable as ordinary income and is subject to a 10% IRS penalty if under age 65