How to market health insurance
With the ever-increasing cost of health care, you should be ever-vigilant in looking for chances to claim tax breaks for medical expenses. Here’s the story on health-insurance premiums that you can potentially deduct on your 2014 return.
Deductible medical expenses
As an individual taxpayer, you can potentially claim an itemized deduction for qualified medical expenses, including health-insurance premiums. However, to actually claim a deduction on your 2014 return, your total qualified expenses, including eligible health insurance premiums, must exceed 10% of your adjusted gross income (AGI) or 7.5% of AGI if you, or your spouse if you are married, was age 65 or older as of Dec. 31, 2014. AGI is the number at the bottom of the first page of your Form 1040; it includes all taxable income items and selected deductions such as alimony paid, student loan interest (up to $2,500), and moving expenses.
If your total qualified medical expenses don’t exceed the applicable percent-of-AGI threshold, you get no write-off. Sorry. That’s why it’s important to identify all qualified expenses that you can throw in the pot, including health-insurance premiums.
General rule for deductible health-insurance premiums
In the medical expense pot, you can include premiums for health policies that cover doctors and hospitals (so-called major medical coverage), dental care, vision care, and specialized health policies that cover things like accidents and cancer. You cannot deduct premiums for insurance that cover loss of limbs or loss of earnings due to illness or injury.
Premiums for Medicare insurance
Just a couple of years ago, the IRS finally admitted that Medicare insurance premiums count as qualified health premiums for purposes of the itemized deduction for medical expenses. Some tax pros, including yours truly, had long believed this to be true, but the Form 1040 instructions and IRS publications provided no support. Now they do (see IRS Publication 502, Medical and Dental Expenses at the IRS website .) There are several different kinds of Medicare insurance. Here are the details.
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Medicare Part B is commonly called medical insurance coverage, and Part B together with Part A is often called “original” Medicare. Part B mainly covers doctors and outpatient services, and most people must pay monthly premiums for this Medicare cornerstone. For 2014, most folks paid the standard Part B premium of $104.90 a month ($1,259 per person for the whole year). Higher income individuals could have paid up to $335.70 a month for 2014 (up to $4,028 per person). As you can see, we can be talking about significant dollars here — especially if you are married and both you and your spouse paid Part B premiums last year.
Medicare Part C is for private Medicare Advantage health plan coverage, which is supplemental to the government-provided Part A and Part B coverage. Premiums vary depending on the plan.
Medicare Part D is for private prescription drug coverage. Premiums vary depending on the plan. Higher-income folks pay an “adjustment amount” in addition to their basic premiums. For 2014, the adjustment amount could have been up to $69.30 a month (up to $832 per person for the whole year).
Medigap Insurance is private supplemental insurance similar to Part C coverage. If you have Medigap coverage, you don’t need Part C coverage and vice versa. Premiums for Medigap policies vary depending on the plan.
Premiums for long-term care insurance
Under the federal income tax rules, a qualified long-term care policy is considered health insurance. Therefore, premiums you pay for a qualified policy are treated as medical costs for itemized medical expense deduction purposes, and they can help you clear the 10%-of-AGI or 7.5%-of-AGI hurdle. There are limits, however. The maximum premium amounts that you can treat as medical expenses are the age-based figures listed below (these numbers are adjusted annually for inflation).
Premiums paid for relativesSource: www.marketwatch.com