17.5 Premiums of Medical Care Policies

Unless you are self-employed and qualify for the 100% above-the-line deduction (discussed below), health insurance premiums are deductible only as an itemized medical expense on Schedule A (Form 1040), subject to the overall AGI floor (7.5% of AGI for 2012; see 17.1). Include premiums you paid for health insurance that covers hospital, surgical, drug costs, and other medical expenses for you, your spouse (17.6), and your dependents (17.7). Also deductible are premiums paid for contact lens replacement insurance. Deductions may be claimed for membership payments in associations furnishing cooperative or free-choice medical services, group hospitalization, or clinical care policies, including HMOs (health maintenance organizations) and medical care premiums paid to colleges as part of a tuition bill, if the amount is separately stated in the bill.

You may deduct premiums for Medicare Part B supplemental insurance and Medicare Part D prescription drug insurance. Payroll withholdings for Medicare Part A are not medical expenses, but premiums for voluntary coverage under Medicare (Part A) are deductible by those over age 65 who are not covered by Social Security.

Premiums paid before you reach age 65 for medical care insurance for protection after you reach age 65 are deductible in the year paid if they are payable on a level payment basis under the contract (1) for a period of 10 years or more or (2) until the year you reach age 65 (but in no case for a period of less than five years).

Premiums for qualifying long-term care policies are deductible subject to limitations (17.15).

Filing Instruction

Long-Term Care Premiums

The amount of deductible premiums for a qualifying long-term care policy depends on your age (17.15).

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Nondeductible premiums.

You may not deduct premiums for a policy guaranteeing you a specified amount each week (not to exceed a specified number of weeks) in the event you are hospitalized. Also, no deduction may be claimed for premiums paid for a policy that compensates you for loss of earnings while ill or injured, or for loss of life, limb, or sight. If your policy covers both medical care and loss of income or loss of life, limb, or sight, no part of the premium is deductible unless (1) the contract or separate statement from the insurance company states what part of the premium is allocated to medical care and (2) the premium allocated to medical care is reasonable.

You may not deduct part of the car insurance premiums for medical insurance coverage for persons injured by or in your car where the premium covering you, your spouse (17.6), or your dependents (17.7) is not stated separately from the premium covering medical care for others.

You generally cannot deduct premiums you pay for covering someone who is not your dependent, even if that person is your child (such as your child under age 27 who is included on your policy). However, if that person is not your dependent only for the reasons specified in 17.7, you may deduct the premiums paid for that person.

Self-employed deduction.

If you were self-employed in 2012 you may claim a special deduction on Form 1040, Line 29, for 100% of health insurance premiums you paid for yourself, your spouse, and your dependents. The deduction is also allowed if you received wages from an S corporation in which you were more than a 2% shareholder, you were a general partner, or were a limited partner who received guaranteed payments.

The above-the-line deduction (12.2) may not be claimed for any month during 2012 that you were eligible for coverage under an employer’s subsidized health plan, including a plan of your spouse’s employer. Also, the deduction may not exceed your net earnings from the business under which the health premiums are paid.

Any balance of premiums not deductible because you had coverage under a subsidized employer health plan may be claimed as an itemized medical expense subject to the 7.5% income floor (17.1).