Rising premiums, increased complexity, uncertainty about what’s covered and what isn’t – when it comes to healthcare, the news is rarely good. If you’re an optimist, however, there is a definite bright side to focus on: Health-related expenses, including insurance premiums, are tax-deductible.
That means you can subtract the amount you spend on insurance from your taxable income, decreasing the amount you pay to the government each year. For gig workers and freelancers, the “self-employed” health insurance deduction is often the best way to maximize your savings. This quick guide will tell you everything you need to know about handling deductions as a freelancer.
Is health insurance tax-deductible?
Health insurance premiums are tax-deductible. When you complete your personal tax returns each year, you can subtract the amount you spent on health insurance from your taxable income. You’ll then use your adjusted income to determine how much money you owe the federal government.
Standard vs. itemized deductions
There are two types of deductions available to you when you go to file your tax returns. The standard deduction is the preset amount that the IRS assigns to people with your filing status. This is the simplest option because all it requires is entering the amount of the standard deduction on Form 1040, the main portion of your tax returns.
Itemized deductions, on the other hand, reflect the actual costs of deductible expenses you paid throughout the year. To find the total size of your deduction, you must include each deductible expense in an itemized list. This list is reported on a Schedule A sheet and attached to your returns.
Standard vs. itemized deductions: Which is better for freelancers and gig workers?
When deciding whether to itemize your deductions or simply take the standard deduction, you’ll need to consider which itemized deductions you’ll actually be able to claim, then compare the estimated total with the standard deduction for someone of your filing status.
The first step, then, is to check the latest standard deductions from the IRS. Make sure you pay close attention to your filing status, which is determined by your marital status and family size.
Once you’ve determined what your standard deduction would be, take some time to estimate the deductible expenses you’ve had throughout the year. Common deductible expenses include:
- Medical expenses
- State and local taxes
- Mortgage interest
- Charitable donations
- Businesses-related expenses
If you think these expenses add up to more than the standard deduction, then it may be worth attaching itemized deductions to your tax returns.
Self-employed health insurance deduction
Since freelancers and gig workers are technically self-employed, they can take advantage of the self-employed health insurance deduction. This is fantastic news for gig workers, allowing them to significantly decrease their federal tax burden. With this special personal deduction, you can deduct all the money you spent on health insurance premiums for yourself, your spouse, and your dependents.
There are two basic requirements to qualify for the self-employed health insurance deduction. First, you need to have earned a profit from your freelance work. Second, you must not be eligible for health insurance from an employer or your spouse’s employer. This means most gig workers who buy their own health insurance are eligible for the deduction.
Other medical expenses that are tax-deductible
In addition to deducting the cost of health insurance premiums, freelancers and gig workers can deduct other health-related expenses from their taxable gross income. Deductible expenses include:
- The cost of visiting doctors, dentists, and other medical professionals
- Hospital care
- Programs for addiction treatment
- Programs for weight loss
- Health-related equipment (glass, dentures, etc.)
- Prescription drugs
- Transportation costs related to medical care
- Insurance premiums
You can deduct these expenses on the Schedule A portion of your federal tax return. Just remember that you can’t “double deduct” any expenses – meaning you can’t list the same expense as a deduction in two places. If, for example, you deduct your health insurance premiums by taking the self-employed health insurance deduction, you can’t then deduct those same premiums as itemized deductions on Schedule A.
What medical expenses are not tax-deductible?
While the federal government allows taxpayers to deduct most medical expenses, there are certain health-related costs that won’t be accepted as deductions. Such non-eligible expenses include:
- Costs related to funeral services or burials
- Over-the-counter drugs and medications
- Personal hygiene products, including toothpaste
- Over-the-counter nicotine addiction products
- Cosmetic surgery (with some exceptions)
- Vacations taken to improve mental or physical health
While it’s certainly disappointing that certain health-related costs are not tax-deductible, you can still deduct plenty of medical expenses from your taxable income. By taking the self-employed health insurance deduction and itemizing other deductible expenses, you can decrease your tax burden and keep hold of more of your hard-earned income.
About the Author: Ben Clabault is a freelance writer from Sandwich, Massachusetts. He has spent much of his adult life traveling through Latin America. He currently lives with his fiance in Santiago Atitlan, Guatemala. His areas of expertise include travel, marketing, SaaS, and global cultures. You can find his work on Copyfolio and reach out to him on LinkedIn.