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Are premiums a deduction?
Old 08-22-2013, 02:37 AM   #1
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Are premiums a deduction?

A single 60 year old guy earns 50k per year. His taxable income is 40k the federal tax due is $6036 per year.
His health care premiums can be $900 a month ($10800 annually) and no subsidy being over the 400%.
That's $16836 taxes on a 50,000 salary.

Does this seem right?
Are the health care premiums a deduction to reduce the federal tax? Or state tax if any.

Health premiums have been a deduction against self employment income maybe this will continue.
What about w2 employees?

Any info?
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Old 08-22-2013, 03:21 AM   #2
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I don't understand where you get $16k of taxes. Health insurance premiums aren't taxes.
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Old 08-22-2013, 06:09 AM   #3
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Health insurance premiums for an employer-sponsored health insurance plan are paid pre-tax, so they are not taxed.

A single 60-year old making $50,000 puts $23,000 into a 401(k) plan tax-free and $6,500 into a traditional IRA tax-free and $4,250 into an HSA tax-free, then takes the standard deduction has about $7,000 in taxable income and pays about about $700 in Federal income taxes.

Health insurance premiums for a retired person are deductible on Schedule A to the extent that they exceed a threshhold. See, e.g., http://www.nolo.com/legal-encycloped...ees-29591.html and the instructions for Form 1040 Schedule A.

Also worth reading:
http://www.irs.gov/pub/irs-pdf/p502.pdf
http://www.irs.gov/uac/Newsroom/Dont...-Self-Employed
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Old 08-22-2013, 06:33 AM   #4
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Refresher, check this IRS summary. Tax Topics - Topic 502 Medical and Dental Expenses

There is fine print, but the general case for those not eligible for employer insurance is the portion of premiums over 10% of income is a deductible health expense. So, in your example, about 1/2 of the premiums could be deductible.

Assuming one itemizes deductions, I think. Run a test case in Turbotax.
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Old 08-22-2013, 07:20 AM   #5
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In order to get a benefit from a medical/dental expense (after tax premiums included) they have to exceed 10% of your AGI and you have to itemize deductions on a schedule A.
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Old 08-22-2013, 07:34 AM   #6
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Quote:
Originally Posted by LOL! View Post
Health insurance premiums for an employer-sponsored health insurance plan are paid pre-tax, so they are not taxed.


Also worth reading:
http://www.irs.gov/pub/irs-pdf/p502.pdf
Don

Health insurance premiums paid with after-tax dollars are deductible as itemized deductions along with all other out of pocket medical costs on Schedule A subject to the 10% of AGI limitation.

Not all employee sponsored health insurance premiums are paid with before tax dollars, though it is the more common arrangement but it is up to the employer.

When I retired from federal service, I continue to pay the same out of pocket premiums that I paid when employed, but now the premiums are paid with after tax dollars.

To deduct any health premiums, need to know wether they are paid before or after tax to do a proper analysis and to properly complete Schedule A.
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Old 08-22-2013, 08:18 AM   #7
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Quote:
Originally Posted by RE2Boys View Post
Health insurance premiums paid with after-tax dollars are deductible as itemized deductions along with all other out of pocket medical costs on Schedule A subject to the 10% of AGI limitation.

Not all employee sponsored health insurance premiums are paid with before tax dollars, though it is the more common arrangement but it is up to the employer.

When I retired from federal service, I continue to pay the same out of pocket premiums that I paid when employed, but now the premiums are paid with after tax dollars.

To deduct any health premiums, need to know wether they are paid before or after tax to do a proper analysis and to properly complete Schedule A.
Unless you retired as a Public Safety Officer. Then you can deduct up to $3000 of your health insurance premium from your income when you file. Pension Protection act of 2006.
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Old 08-22-2013, 06:20 PM   #8
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Originally Posted by Kaufmanrider View Post
Unless you retired as a Public Safety Officer. Then you can deduct up to $3000 of your health insurance premium from your income when you file. Pension Protection act of 2006.

Good point. Deduction is not taken on Schedule A but on Form 1040 as an adjustment to taxable pension income. Pub 575 for conditions when this deduction can be taken.
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Old 08-22-2013, 06:28 PM   #9
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Quote:
Originally Posted by LOL! View Post
Health insurance premiums for an employer-sponsored health insurance plan are paid pre-tax, so they are not taxed.

A single 60-year old making $50,000 puts $23,000 into a 401(k) plan tax-free and $6,500 into a traditional IRA tax-free and $4,250 into an HSA tax-free, then takes the standard deduction has about $7,000 in taxable income and pays about about $700 in Federal income taxes.



Also worth reading:
http://www.irs.gov/pub/irs-pdf/p502.pdf
http://www.irs.gov/uac/Newsroom/Dont...-Self-Employed
All those contributions are not realistic for most with jobs. If one earns $50,000 and takes a standard deduction there is federal tax, social security and in some cases state tax. If no medical benefits are offered through the job it must purchased assuming one is not taking the penalty.
Take home pay may be less than $40,000 and then the premiums for ACA may be another $10,000.
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Old 08-22-2013, 07:35 PM   #10
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Quote:
Originally Posted by Refresher View Post
A single 60 year old guy earns 50k per year. His taxable income is 40k the federal tax due is $6036 per year.
His health care premiums can be $900 a month ($10800 annually) and no subsidy being over the 400%.
That's $16836 taxes on a 50,000 salary.

Does this seem right?
Are the health care premiums a deduction to reduce the federal tax? Or state tax if any.

Health premiums have been a deduction against self employment income maybe this will continue.
What about w2 employees?

Any info?
Assuming that the taxpayer is not covered by employer provided insurance then the $10,600 paid for health insurance premiums would be deductible only to the extent it exceeds 10% of income, so in this case the taxpayer could claim a deduction of $5,800 ($10,800 - $50,000 * 10%) so whether or not it would reduce his tax would depend on what other deductions he has and how they interact with the standard deduction. If he had no other deductions I don't think he would get any benefit because his standard deduction would exceed his health insurance deduction.

As others have pointed out, the $10,800 should not be included with taxes and compared to income in assessing his tax burden.

$900/month for health insurance for a single is higher than most of the premiums I have seen, but it might be that high in some parts of the country.

But you are right in that after SS taxes, the ~$6k in federal income tax that health insurance premiums will eat up a big part of this single person's budget and they are not eligible for subsidies.
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Old 08-22-2013, 09:53 PM   #11
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Originally Posted by pb4uski View Post

Assuming that the taxpayer is not covered by employer provided insurance then the $10,600 paid for health insurance premiums would be deductible only to the extent it exceeds 10% of income, so in this case the taxpayer could claim a deduction of $5,800 ($10,800 - $50,000 * 10%) so whether or not it would reduce his tax would depend on what other deductions he has and how they interact with the standard deduction. If he had no other deductions I don't think he would get any benefit because his standard deduction would exceed his health insurance deduction.

As others have pointed out, the $10,800 should not be included with taxes and compared to income in assessing his tax burden.

$900/month for health insurance for a single is higher than most of the premiums I have seen, but it might be that high in some parts of the country.

But you are right in that after SS taxes, the ~$6k in federal income tax that health insurance premiums will eat up a big part of this single person's budget and they are not eligible for subsidies.
I refinanced my mortgage last year and was planning on an accelerated payback just to pay off the loan. Now this past month I put the brakes to that to preserve my mortgage tax deduction so I can cobble that together if necessary to get a meaningful tax deduction if my healthcare costs balloon over that threshold.
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