Health insurance can affect your taxes by lowering your taxable income or helping you qualify for tax credits, depending on how you get coverage. Employer-sponsored insurance often includes pre-tax premium deductions, while Marketplace plans and self-employed coverage may offer tax credits or deductions. Read on to learn how health insurance can affect your taxes and potential savings opportunities.
Key takeaways on how health insurance affects your taxes
- Marketplace plans may qualify you for the Premium Tax Credit, which can lower your health insurance costs.
- Self-employed taxpayers may be able to deduct 100% of qualifying health insurance premiums.
- Premiums paid pre-tax through an employer plan already reduce taxable income and generally can’t be deducted again.
- FSA contributions lower taxable income because they’re made with pre-tax dollars.
- HSAs offer a triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free qualified withdrawals.
What is the health insurance tax credit and who qualifies?
The Premium Tax Credit (PTC) makes health insurance more affordable for people buying coverage through the marketplace. Many taxpayers choose to receive the credit in advance to lower their monthly premium costs throughout the year. When you file, you’ll need to reconcile the amount of advance payments received with the credit you were eligible for by completing Form 8962, Premium Tax Credit. Information from Form 1095-A is used to calculate and report the credit.
Eligibility for the PTC is based on factors including your income, family size, and the cost of Marketplace coverage. . Depending on your circumstances, you may qualify for the Premium Tax Credit even if your household income exceeds 400% of the federal poverty level.
Special provisions for tax years 2021 – 2025
The Affordable Care Act temporarily expanded Premium Tax Credit eligibility and benefits for tax years 2021 through 2022, and the Inflation Reduction Act (IRA) extended those provisions through tax year 2025. Under these temporary rules, households with a household income at or below 150% of the Federal Poverty Level (FPL) generally did not have to pay premiums for the benchmark plan. In some states, you may have had to pay a small fee due to additional state-mandated benefits. View the table below to determine how much you were required to pay for your healthcare plan.
| Required contribution to the benchmark plan premium for 2025 | ||
| Household income range (% of the FPL) | Required % of household income at the top of the range | Required % of household income at the top of range |
| Less than 150% | 0% | 0% |
| 150% – 200% | 0% | 2% |
| 200% – 250% | 2% | 4% |
| 250% – 300% | 4% | 6% |
| 350% – 400% | 6% | 8.5% |
| Above 400% | 8.5% | 8.5% |
To claim the credit, use Form 1095-A which you will receive in the mail to complete Form 8962 when you file your tax return. You’ll use this form to reconcile the difference between the actual value of the premium tax credit (based on the requirements listed above) and any advance payments you received throughout the year.
The enhanced Premium Tax Credit provisions that were available from 2021 through 2025 expired after tax year 2025. These temporary rules expanded subsidy eligibility and increased financial assistance for many Marketplace enrollees.
In 2026, Premium Tax Credit eligibility and subsidy amounts are generally determined under the Affordable Care Act’s original rules. As a result, you may qualify for smaller subsidies, pay a larger share of their health insurance premiums, or no longer qualify for Premium Tax Credit assistance. You should review current IRS guidance to determine their eligibility and estimated credit amount for the applicable tax year.
Is health insurance tax deductible?
If you’re not self-employed and you itemize deductions, you may deduct unreimbursed medical expenses that exceed 7.5% of your AGI. More than half of U.S. states allow taxpayers to deduct medical and dental expenses from their state tax returns.
If you’re self-employed
If you’re self-employed and/or purchase health insurance through the marketplace, you may be eligible to deduct up to 100% of the cost of health insurance if you meet one of the following requirements:
- You’re reporting a net profit for the year using Schedule C or Schedule F.
- You’re a general partner or a limited partner receiving guaranteed payments
- You’re a shareholder owning more than 2% of an S corporation with wages from the corporation reported on Form W-2.
If you have employer coverage
If you receive health insurance through your employer, the portion of your premiums that is deducted from your paycheck is often paid with pre-tax dollars. This means those premiums are generally excluded from your taxable income, which can lower the amount of federal income tax, Social Security tax, and Medicare tax you pay throughout the year. Employers may provide Form 1095-C reporting information about your health coverage, which you should keep with your tax records. In most cases, employer-sponsored health insurance premiums are not separately deductible on your tax return because the tax benefit is already received through the pre-tax payroll deduction.
If you itemize deductions
If you itemize deductions, you may be able to deduct health insurance premiums and other qualifying medical expenses you paid out of pocket. However, only unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI) are deductible. Premiums paid with pre-tax dollars through an employer plan generally can’t be deducted because you’ve already received a tax benefit.
FSA tax benefits
A Flexible Spending Account (FSA) can help lower your tax bill by allowing you to contribute pre-tax dollars from your paycheck to pay for eligible medical or dependent care expenses. Because contributions are made before federal income, Social Security, and Medicare taxes are calculated, they reduce your taxable income. In addition, withdrawals used for qualified expenses are tax-free, helping you maximize your healthcare dollars. For example, if you earn $50,000 and contribute $2,500 to an FSA, you’ll generally pay taxes on only $47,500 of income, creating potential tax savings throughout the year.
HSA tax benefits
A Health Savings Account (HSA) offers a unique triple tax advantage. Contributions are generally tax-deductible or made pre-tax through payroll deductions, reducing your taxable income. The money in your account can grow tax-free, and withdrawals used for qualified medical expenses are also tax-free. Unlike an FSA, unused HSA funds roll over from year to year, allowing you to build long-term savings for future healthcare costs. This combination of tax deductions, tax-free growth, and tax-free qualified withdrawals makes an HSA one of the most tax-advantaged healthcare savings options available.
What health insurance tax forms should you include in your return?
Depending on your health insurance coverage and the tax benefits you’re claiming, you may need one or more of the following forms when filing your return:
- Form 1095-A: Sent to taxpayers who purchased coverage through the Health Insurance Marketplace. You’ll use the information on this form to claim or reconcile the Premium Tax Credit.
- Form 8962: Used to calculate and reconcile the Premium Tax Credit (PTC) based on your actual income for the year.
- Form 1095-C: Provided by some employers to report information about employer-sponsored health coverage. While it’s generally not filed with your return, you should keep it for your records.
- Schedule A (Form 1040): Used to claim itemized deductions, including eligible unreimbursed medical expenses that exceed 7.5% of your AGI.
- Schedule 1 (Form 1040): Used to claim the self-employed health insurance deduction.
Is there a tax penalty for no health insurance?
The Affordable Care Act required all Americans to have health insurance. If you didn’t enroll in a healthcare plan, you’d face a fine at tax time. This tax penalty was lifted in 2018, so you won’t have to deal with a tax bill for not having health insurance.
Although you’re not required to have health insurance, it can provide significant savings on medical bills throughout the year. The health insurance marketplace offers plans with different premiums to fit your budget. While there is no federal tax penalty for not having health insurance, some states and the District of Columbia may impose their own coverage requirements and tax penalties.
Filing taxes while on Medicaid
Medicaid programs are administered by states, and the funding comes from both state and federal tax money. If you receive Medicaid coverage, you may receive Form 1095-B reporting your health coverage. In most cases, you don’t need this form to file your federal return, but you should keep it with your tax records.
You should receive Form 1095-B reporting information regarding your health coverage. Your state return may require additional paperwork to document Medicaid payments. You can refer to your state’s department of revenue for more information.
Need more help? TaxSlayer walks you through each step of the filing process to make sure you’ve included all the right information
FAQs about health insurance and taxes
Health insurance coverage has different implications for your taxes depending on the type of coverage and your AGI. Get answers to some of your common questions about health insurance and taxes here!
Why do I owe taxes for health insurance?
You may owe taxes for health insurance if you used more of the premium tax credit than you qualified for. You’ll have to report the excess amount on your 1040 using Form 8962. For tax year 2020 only, you are not required to attach Form 8962 to your 2020 tax return due to COVID-19 provisions.
Do health insurance premiums reduce taxable income?
Health insurance premiums can potentially reduce your taxable income. Health insurance premiums are tax deductible if you itemize deductions and if you qualify for this specific deduction.
Does health insurance affect taxable income?
Health insurance does not directly affect taxable income, but if you deduct your health insurance premiums, it can reduce your taxable income. Contributing to an HSA or FSA also reduces your taxable income.
How does the IRS know if you have health insurance?
The IRS will know you have health insurance if you use a 1095 to file your taxes. If you don’t have health insurance, you will not be penalized by the IRS.
How does not having health insurance affect your tax return?
Not having health insurance has no impact on your tax return and tax bill for tax years 2018 and newer. But prior to 2018, you were penalized for not having coverage.
