Are Health Insurance Premiums Deducted From My Paycheck Taxable?

by Neil Kokemuller
Self-employed workers often don't have the luxury of pre-tax insurance deductions.

Many employees pay some or all of their own health insurance premiums through a group plan. In most cases, employers remove your premium portion before you receive a paycheck. This approach means that your premiums are pre-tax dollars. It is rare that you would pay premiums through an employer plan and itemize the insurance deduction on a tax return.

Medical Expense Deductions

Health insurance premiums are a type of medical expense. Medical costs are tax-deductible, though to claim certain costs on your tax return, you have to itemize your deductions. Typically, only medical costs that exceed 10 percent of your adjusted gross income reduce your taxable income obligation. Unless you have significant health conditions, a typical full-time worker wouldn't invest that much in medical costs beyond insurance premiums.

Pre-Tax Deductions

Group health, disability, life insurance and flexible spending account dollars are all commonly paid pre-tax through your employer's payroll. This process is both convenient and economically beneficial. Essentially, taking your expenses in these areas out before your wages are taxed reduces your tax obligation. If you earn $3,000 gross in a month and your health premium portion is $300, the employer takes that off the top. Thus, your taxable wages are then $2,700, less any other amounts deducted.

No Double Dipping

When you have pre-tax dollars removed for health premiums, you already get a tax benefit. You also get the advantage of not having to itemize the premiums on your return. However, you can't double dip. This concept means that you can't get both the pre-tax dollar benefit and make an additional deduction claim for your premiums when you file taxes. In essence, you would ask for the same deduction twice.

Pre-Tax Exceptions

Though rare, some employers may remove your premiums post-tax if you request that they do so. A post-tax deduction means your premium amount is removed after your gross wages are taxed. In this case, you could claim the deduction on your return. Rarely is this move beneficial to you, though. If you pay for a non-employer health plan, you would typically have to claim the insurance deduction as part of your medical expenses when you file.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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