Health Insurance Premiums

• Health insurance premiums are listed as a medical expense on Form 1040, Schedule A. The premium amount -- that you actually paid with after-tax dollars -- is the deductible amount. Many employers have tax-advantaged plans that allow you to pay insurance premiums with pre-tax dollars. If you are in this type of plan, you cannot deduct the premiums. Your total medical expenses, including health insurance premiums, must exceed 7.5 percent of your adjusted gross income to be deductible. You can only deduct the excess over this 7.5 percent threshold.
  
  

Long-term Care Insurance

• Long-term care insurance provides coverage for persons who must be cared for in a nursing home. These premiums are also deductible on IRS Form 1040, Schedule A as medical expenses subject to two limitations. First, like health insurance, long-term care premiums are added to medical expenses and only the excess over 7.5 percent of adjusted gross income can be deducted. Second, the long-term care premiums are subject to limitations based upon age. As you get older, you are allowed to add larger amounts of the premiums to your total medical expenses.
  
  

Self-employed Tax Payers

• If you are self employed, you receive a better tax advantage from your health insurance premiums. The health insurance premiums can be treated as an adjustment to income, up to the total of your self-employed income. The benefit of adjusting your income directly on the IRS Form 1040 rather than using deductions from the Schedule A is that there is no 7.5 percent threshold that must be exceeded to benefit from the expense. This results in a direct reduction of your taxable income.
  
  

Standard Deduction or Itemization?

• The standard deduction on the federal tax return changes slightly each year, adjusting for inflation. Many tax payers take the standard deduction because their total itemized deductions do not exceed the standard deduction. You may find yourself in the situation where your itemized deductions, including health insurance premiums, do not exceed the standard deduction. The 7.5 percent threshold often is the cause of not being able to benefit from using itemized deductions. If the standard deduction is greater than the total of your itemized deductions, you should use the standard deduction.