Pre-Tax Health Insurance Premiums

[yennisse]

What is the name of your state (only U.S. law)? va

Can I deduct my pre-tax health insurance premiums when I itemize my deductions? I'm assuming that the answer is NO since I'm not paying tax on my earnings due to the fact that the premiums are pre-tax, but I thought I'd ask anyway.

Does anyone know if it is it a smart idea to leave it as a pre-tax item? I know that it's beneficial because you are reducing your overall income and therefore paying less tax at the end, but if you itemize deductions is it better not to take the health insurance premiums out pre-tax?

 

[ecmst12]

The net effect is the same so the only difference in paying pre-tax is you get the money in your hand throughout the year.

No, you can't deduct something from your income that isn't included in your income already. That would be double-dipping.

 

[tranquility]

The net TAX effect is different.

(Assuming an employee. If a self-employee of something the OP owns, the calculation changes because you have two entities and their interaction including self-employed above-the-line deduction.)

The tax problem with post tax and deduction rather than pre-tax is twofold. First, medical deductions are reduced by 7.5% of the net income. Most people can't deduct medical expenses at all because of the limitation.

Second is more minor, but could be big depending on the facts. There are many limits (some rateable) on when you can deduct something, if you can take advantage of certain tax situations (like contributions to IRA) and a few other things based on income before you take deductions. If a person is close to those limits, the extra thousands of dollars in income from the inclusion of health insurance costs could mean a huge difference.

 

[davew128]

The pre-tax deduction is also not subject to FICA which is not an insignificant item.

 

[ecmst12]

Bottom line, paying premiums pre-tax if you can is definitely better? I'm not sure I understand everything tranq said

 

[FlyingRon]

Taking your insurance as a schedule A itemized deduction is as tranq said not going to result in 100% of the money being excluded from being taxed.
The deduction is limited both by specific limits on the health insurance lines on the schedule and by the fact that you may not clear the standard deduction anyhow.

If your employer takes the insurance amount out pretax, it comes off the top and you don't pay any income or SS tax on it.

There are a few things you can deduct off the top as adjustments to income (like HSA contributions if you qualify), but insurance premiums aren't one of them.