What health insurance premiums are tax deductible

Absolutely, yes. Employer paid health insurance premiums are tax deductible, but there are some exceptions and group health insurance tax benefits for both employers and employees. Let's discuss about them.

Through thick and thin, good times and bad, you and your employees face life as a team. So with health insurance, why keep coverage for yourself?  

Group health insurance is one such way for small businesses to look after their workforce. It includes several benefits for the employees and is an affordable and quick solution for getting health coverage. It’s light on the pocket as opposed to individual health insurance and is, therefore, a great way to stay protected at nil or low medical costs.

But what’s in it for employers? A happy workforce is a more productive one. By ensuring health coverage for its employees, businesses can benefit from better outcomes at work. Additionally, a group health insurance plan also entails lucrative tax benefits for organizations as enumerated below.

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Quick summary

When you’re purchasing group health insurance, it’s good to know the benefits that come along with it like tax deductions. Here you’ll learn:

• Is group health insurance tax deductible?

• Group health insurance tax benefits for employers

• Group health insurance tax benefits for employees

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Are employee paid health insurance premiums tax deductible?

As per Section 80D of the Income Tax Act, the premium of a health insurance coverage can be deductible from taxable income. Individuals can claim a tax deduction of Rs 25,000 on insurance payments for self, spouse, and dependent children.

Not just individuals, employees of an organization can enjoy analogous benefits. The legislation also states employers can claim relief on paying health insurance premiums.

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Employee healthcare handbook

A quick and easy-to-read guide for implementing employee benefits that work for you and your organization

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Group Health Insurance Tax Benefits For Employers:

As an employer, the health insurance premiums you pay on behalf of your employees are deemed as fringe benefits and may be considered as a business expense. So, if you pay the total premium payment, you can avail of group mediclaim policy tax benefit on the entire amount.

How does it work? 

Here, section 17 of the Income Tax Act that deals with ‘salary,’ ‘perquisite,’ and ‘profit in lieu of salary’ comes into play. It states that the premium you pay for your employees is a benefit, so it falls under the ‘Profit in lieu of salary’ category. It communicates that your company can claim the entire amount as a business expense in your profit and loss account irrespective of the amount of premium paid.

This clause also allows different business categories like companies (public or private), partnership firms, and sole proprietorship to enjoy benefits.  

In simple words, group health insurance premiums are an additional benefit to employees that’s why you can use them to get taxable income benefits. Therefore, group medical insurance for employees helps organizations reduce their overall tax liability.

Yes, I Want Group Health Insurance

Group Health Insurance Tax Benefits For Employees:

Company health insurance also entails tax benefits for employees. Group mediclaim policy tax benefit vary depending on which scenario you fall under.

1. When you partially pay the premium amount  
2. When you pay the entire amount 
3. When your employer pays the entire amount 

In brief, you can claim the benefit of group health insurance tax deduction under Section 80D of the Income Tax Act for paying a premium on health insurance for yourself as well as your family members, but the tax implications for the three may vary. Employees can claim group health insurance tax deduction on medical expenses to save bills amount. If you’re looking for detailed information to determine which one’s best for you, you can read more here. 

Give A Protected Future To Your Employees:

Employee medical insurance policies are tax deductible so they are beneficial for both employers and employees. It’s a solicited way to boost employee morale while reducing overall tax liability for organizations.

Health insurance premiums are deductible if you itemize your tax return. Whether you can deduct health insurance premiums from your tax return also depends on when and how you pay your premiums:

• If you pay for health insurance before taxes are taken out of your check, you can’t deduct your health insurance premiums.
• If you pay for health insurance after taxes are taken out of your paycheck, you might qualify for the medical expense deduction.
• If you paid the premiums for a policy you obtained yourself, your health insurance premium is deductible when they are out-of-pocket costs.
• If your insurance is through your employer, you can only deduct these:
  • Amounts you paid with after-tax funds
  • Medical expenses that are more than 7.5% of your adjusted gross income (AGI) for 2018. After 2018, the expenses must be more than due to the Tax Cuts and Jobs Act. 

You’ll need to review your paycheck stub to determine when you pay for health insurance. Also, if you have pre-tax amounts withheld from your paycheck for your insurance, the amount on your W-2, Box 1 won’t include the cost of your health insurance. So, your income is already adjusted for the cost of your health insurance.

Medical Insurance Premium Deductions: What Can Be Included

If you’ve paid premiums with after-tax money, include these payments:

• Medical insurance
• Dental insurance
• Medicare A insurance (if you’re enrolled voluntarily and not as a Social Security recipient or government employee)
• Medicare B supplemental insurance
• Medicare D prescription insurance
• HMO membership

Also, you can include long-term care insurance, up to these limits for 2019:

• Age 40 or under: $420 maximum deduction
• Age 41-50: $790 maximum deduction
• Age 51-60: $1,580 maximum deduction
• Age 61-70: $4,220 maximum deduction
• Age 71 or older: $5,270 maximum deduction

Don’t include these payments:

• Any amount you entered in the self-employed health insurance part of your return
• Disability insurance
• Life insurance
• Vehicle insurance (even if it covers medical care in the event of an accident)
• Medicare taxes
• Insurance you used to figure your health coverage care credit (Form 8889)
• The incremental cost of adding a nondependent child under age 27 to your policy
• Medical costs reimbursed by any of these:
  • Insurance
  • Health savings accounts (HSAs)
  • Flexible spending accounts (FSAs)
  • Other tax-benefitted medical savings accounts

Related Topics

Adjustments and deductions States Dependents Credits

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