Health Insurance and Your Income Taxes

Health insurance is first and foremost a financial safety net. Yet, it can also play a meaningful role in lowering your tax bill. But the rules on what can and cannot be deducted aren’t always intuitive. In fact, the IRS code addressing health related expenses can be downright confusing. If you buy health insurance individually or for your family (instead of through an employer), here’s a simplified breakdown to help you file confidently and take advantage of every available tax benefit.

**What You Can Deduct**

If you purchase your own health insurance, the IRS allows certain deductions that can lessen your taxable income:

1. Premiums for Individual or Family Health Insurance

If you’re self-employed, you can typically deduct 100% of your health insurance premiums, including medical, dental, and long-term care, without needing to itemize. This deduction directly reduces your adjusted gross income.

If you’re not self-employed, premiums may still be deductible, but only if you itemize and your total medical expenses exceed 7.5% of your adjusted gross income (AGI) (IRS Publication 502). With healthcare costs rising nearly 4% annually since 2021, more families find themselves closer to that threshold than before.

2. Out-of-Pocket Medical Expenses

These include:

Doctor visits
Prescription medications
Lab work
Mental health services
Some specialty treatments

Again, these are deductible only if they exceed the 7.5% AGI floor.

**What You Cannot Deduct**

The IRS draws a clear line on non-qualifying expenses. You typically cannot deduct:

Over-the-counter medications (unless prescribed)
Cosmetic procedures
Gym memberships or wellness programs
Most alternative or elective treatments

And importantly, premiums paid with pre-tax dollars cannot be deducted again—no double dipping.

How a Health Savings Account (HSA) Can Lower Your Tax Burden

If you’re enrolled in a High Deductible Health Plan (HDHP), an HSA is one of the most powerful tax tools available. HSAs offer a triple tax advantage:

Contributions are tax-deductible.
Growth is tax-free.
Withdrawals for qualified medical expenses are tax-free.

For 2025, contribution limits are:

$4,300 for individuals
$8,550 for families
An additional $1,000 catch-up contribution if you’re 55+

According to Devenir Research, HSA account assets grew to over $123 billion nationwide, with more than 36 million accounts. This is proof of their growing popularity as a tax-efficient savings tool.

Even better, HSAs do not have a “use it or lose it” rule. Funds roll over year after year, allowing families to build a long-term medical reserve (or even a future Medicare supplement fund).

Tax Tip: You can claim HSA contributions even if you don’t itemize, and you can make contributions up until the tax filing deadline for the previous tax year.

Other Smart Health Insurance–Related Tax Strategies

Premium Tax Credits: As of this writing on 12/5/2025, subsidies for the Health Insurance Marketplace are set to lapse at year’s end. However, if Congress decides to extend the subsidies, your income may qualify you to reduce the monthly costs In 2023, roughly 13 million Americans received these credits (KFF.org).
FSA vs. HSA: While FSAs can save taxes, they lack rollover benefits and are employer-based. If you’re self-employed or want long-term tax planning, an HSA is generally more flexible.
Keep good records: Receipts, EOBs, and pharmacy printouts make tax time far easier—and help ensure nothing gets missed.

Health insurance and income taxes are more closely connected than most people realize. Understanding what you can deduct, and how tools like HSAs can amplify tax savings, helps you keep more of your hard-earned money while protecting your family’s health.

If you’d like to review your health insurance options or understand how your coverage impacts your taxes, we’re always here to help.