The changes to the Affordable Care Act, also known as Obamacare, have created some confusion with taxpayers for the 2014 tax returns. This means that you need to be sure you are aware of the tax breaks you are eligible for to deduct on your 2014 return.

Deductible Medical Expenses

Heath insurance premiums and other qualified medical expenses are deductible for the individual taxpayer when itemizing deductions. To qualify for these deductions, you must meet one of the following conditions:

  • The total amount of your medical deductions and health insurance premiums must be greater than 10 percent of you adjusted gross income (AGI)

or

  • If you are married, and either you or your spouse was age 65 or older as of December 31, 2014 your total medical deductions and health insurance premiums must total 7.50 percent or higher of your AGI

Your Adjusted Gross Income includes all taxable income and allowable deductions such as alimony payments, student loan interest up to $2,500, and moving expenses. The number will be found at the bottom of Page One of your tax from 1040.

It is important to know that you must meet these minimum qualifications in order to take the medical expense deduction. Be sure you have all your receipts, including medical insurance premiums, all in one place. If you cannot document the deductions, you will not be able to survive an audit.

General Rule for Deductible Health Care Premiums

health-insurance-plan-dedictible-premiumPremiums you paid for on major medical coverage policies that include doctor visits, hospital visits, as well as specialized health care coverage that includes care for cancer and accidents, can be included as part of your health care expenses. Also in the group are dental insurance expenses and vision care expenses. One type of premium that is not deductible is a policy that covers loss of income due to illness or injury as well as any loss of limbs due to illness or injury.

Premiums for Medicare Insurance

When dealing with Medicare insurance premiums, you need to understand the four different types of Medicare plans and the premiums that are charged for each of them. The IRS has ruled that Medicare insurance premiums are just as deductible as any normal major medical coverage premium. For more information, go to the IRS web site and find Publication 502, Medical and Dental Expenses.

Part A of Medicare Insurance usually does not cost you anything. This is your basic hospital insurance coverage. The premiums for this coverage are considered to be paid during the time you or your spouse was working and paying taxes on Social Security.

There are a few number of people who are required to pay Medicare Part A premiums. The maximum premiums for the 2014 tax year can be as high as $426 per month, per person, or a total of $5,112 per person for the calendar year.

Part B of Medicare is more commonly known as medical insurance coverage. Together with Part A, the two are known as original medical care. Part B covers most doctor services and visits, and outpatient services. In most cases, you will pay a monthly premium to have the coverage. Usually you will have the premium deducted directly from your monthly Social Security check.

For the 2014 calendar year, the monthly premium was $104.90 per month or $1,259 for the entire year. For high income persons, the monthly premium could have been as high as $335.70 a month or up to $4,028 per person for 2014. These amounts can add up quickly, especially if both you and your spouse were paying premiums for the entire year.

Part C is private Medicare Advantage coverage and the premiums will depend on the type of health insurance plan you have chosen. It is basically a supplemental insurance plan that is added to your Plan A and Plan B coverage.

Part D is specifically for private prescription drug coverage. Like Part C, the premiums will depend on the type of Part D coverage chosen. High income taxpayers will have paid an “adjustment amount” on their Part D premiums. That amount could be as high as $69.30 per month or up to $832 per person for the calendar year.

There is also Medigap insurance that is private insurance similar to Medicare Part C. If you have a Part C plan you will not need Medigap coverage, and if you have Medigap coverage you will not need Part C. As with Part C plans, the premium you will pay will depend on the type of coverage you choose.

Premiums for Long Term Care Insurance

A qualified long term health coverage plan is considered to be health insurance under the federal tax guidelines. When adding up your total medical expenses to be deducted, be sure to include any premiums paid for long term care insurance.

However, there are limits. The limits imposed are age-based and are adjusted for the annual rate of inflation.

Premiums Paid for Relatives

If you paid medical insurance premiums for a relative in 2014, you are allowed to deduct a certain portion of those expenses. To qualify as a relative for IRS purposes, you had to have provided a minimum of one half of their support in 2014. The relative did not have to live with you to be eligible to deduct the premiums paid. Qualifying relatives include:

Father
Mother
Brother
Sister
Step-father
Step-mother
Stepbrother
Stepsister
Adult child
Father-in-law
Mother-in-Law
Son-in-law
Daughter-in-law
Uncle
Aunt
Nephew
Niece

A Final Thought

If you did not know that all these items are eligible to be claimed as legitimate medical expense deductions, do not be surprised. Many people do not know their Medicare and long term insurance premiums qualify as deductions. It is best to get it right the first time by finding out what insurance premiums are eligible to be deducted and filing an itemized tax return.