Are COBRA Payments Deductible for Income Tax Filing?

The COBRA program provides a means to help people continue their existing health insurance when they have a change of employment status for any reason other than gross misconduct. Most employers with ​20 or more​ employees are required to offer COBRA coverage to former employees and their families for which they had provided group insurance while employed.

So, is COBRA tax deductible? Yes, cobra payments are tax deductible sometimes. However, there are conditions you must fulfill.

How COBRA Works

The Federal Consolidated Omnibus Budget Reconciliation Act allows eligible employees to continue for a period of time their existing health insurance at the employer's group rate. Upon leaving a job, a former employee can typically use the same medical plan and insurance provider, maintaining continuity and stability while transitioning to new employment.

The process to file claims also stays the same – the person would use the same insurance card they've used while employed when obtaining health care. COBRA benefits may continue for up to ​18 months​ after employment ends.

People with disabilities can extend the period for a total of up to​ 29 months. Many employers subsidize health insurance premiums, so employees pay less for their insurance while employed.

Former employees on COBRA must cover their portion of the insurance premium, plus the portion the former employer had subsidized while they were working, making the total cost of coverage more expensive under COBRA.

COBRA: Itemized Deductions

Before completing your tax return, you must decide to either take the standard deduction or itemize all of your expenses. If you go with the standard deduction, you won't be able to take COBRA payments as a deduction.

If your total deductions exceed the standard deduction, you can deduct the payments you make for COBRA coverage, with one caveat: You must have enough medical expenses to exceed ​7.5 percent​ of the adjusted gross income on your tax return. You'll file using the standard IRS Form 1040 and Schedule A for the health insurance deductions.

COBRA Deduction Limits

You can only enjoy cobra tax deduction on your tax return based on what you paid out of your own pocket for expenses, and the costs must have been for yourself as the taxpayer, your spouse or a dependent.

If your employer paid for all or part of your COBRA premiums, or if someone else paid for it such as your ex-spouse, you cannot deduct the payments on your own tax return. Additionally, you can deduct medical expenses incurred only in the year for which you are filing the tax return.

2021 Tax Law Changes

Thanks to inflation, the standard deductions and tax brackets are higher for the tax year 2021. That also means it may be tougher to get enough expenses to reach the minimum required to itemize. So, you might find you're better off using the new, higher standard deduction instead of itemizing.

For singles, married but filing separately, and surviving spouses, the standard deduction is ​$12,550​, while married couples have a limit of ​$25,100​. Also, heads of household receive an ​$18,800​ deduction.

The Tax Cuts and Jobs Act lowered the IRS medical deductions to a minimum of ​7.5 percent​ of adjusted gross income. Those deduction limits are still in place for the tax year 2021.

Aside from COBRA costs, other allowable medical expenses that you can take to get to ​7.5 percent​ of your adjusted gross income include money spent to diagnose, treat, cure or prevent disease, including expenses for dental work.