Good health is important but maintaining good health can be expensive. The U.S. government encourages every U.S. individual to own insurance, and be prepared for any medical needs by providing certain tax credits and tax deductions for incurred medical expenses. However, many U.S. citizens and residents are unaware of these tax benefits provided by the government to encourage health insurance purchases and medical savings.
In this article, we have highlighted the major tax benefits available to U.S. taxpayers.
U.S. Health Tax Credits
Premium Tax Credit
The premium tax credit (PTC) is a refundable tax credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. To get this tax credit, a taxpayer must file a tax return, and meet certain requirements.
To qualify a taxpayer must meet all the following requirements:
- Have household income that falls within a certain range. Household income must be at least 100 – but no more than 400 – percent of the federal poverty line for your family size.
- Do NOT file a tax return using the ‘Married Filing Separately’ tax status, unless the person is a victim of domestic abuse, or other similar situation.
- Cannot be claimed as a dependent by another person.
- Have health insurance coverage through a Health Insurance Marketplace.
- Unable to buy affordable coverage through an eligible employer-sponsored plan that provides minimum value.
- Ineligible for coverage through a government program (Medicaid, Medicare, CHIP or TRICARE).
- Pay the premiums not covered by advance credit payments.
The amount of the credit is based on:
- Household income
- Cost of available insurance coverage
- Where you live
- Your address
- Your family size
In some cases, taxpayers may be eligible for advance credit payments. Advance credit payments are amounts paid to the insurance company on your behalf to lower the out-of-pocket cost for your health insurance premiums.
Health Coverage Tax Credit
The Health Coverage Tax Credit is a tax credit, which pays 72.5 percent of qualified health insurance premiums for eligible individuals and their families, and can now be claimed through 2019. Note that, the HCTC is not a direct premium payment but rather a reimbursement of premiums paid.
In order to be eligible for Health Coverage Tax Credit (HCTC), the taxpayer should be:
- An eligible trade adjustment assistance recipient, alternative TAA recipient or re-employment TAA recipient,
- An eligible Pension Benefit Guaranty Corporation payee, or
- The family member of an eligible TAA, ATAA, or RTAA recipient or PBGC payee who is deceased or who finalized a divorce with you.
A person may not qualify for the HCTC if they are being claimed as dependent on another person’s federal income tax return, or they are enrolled in Medicare, Medicaid, the Children’s Health Insurance Program, or the Federal Employees Health Benefits Program or are eligible to receive benefits under the U.S. military health system (TRICARE).
Medical Tax Deductions
-
Itemized Deductions for Medical and Dental Expenses
The Tax Reform and Jobs Act of 2017, enacted on December 22, 2017, changed the AGI threshold for medical expenses from 10% to 7.5% for tax year 2017 and 2018.
Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Medical expenses also include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses may also include amounts paid for qualified long-term care services.
The deductible amount is calculated based on the taxpayer’s filing status, type and amount of medical expenses paid, adjusted gross income (AGI), and the tax year in which the expenses were paid.
The medical expenses tax deduction cannot be claimed if the expenses were reimbursed or paid out of the Health Savings Account or an Archer Medical Savings Account.
Health Savings Accounts (HSA)
Various programs are designed to give individuals tax advantages to offset health care costs. These include:
- Health Savings Accounts (HSAs).
- Medical Savings Accounts (Archer MSAs and Medicare Advantage MSAs).
- Health Flexible Spending Arrangements (FSAs).
- Health Reimbursement Arrangements (HRAs).
An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual. Contributions, other than employer contributions, are deductible on the eligible individual’s return whether or not the individual itemizes deductions. Employer contributions aren’t included in income. Distributions from an HSA that are used to pay qualified medical expenses aren’t taxed.
An Archer MSA may receive contributions from an eligible individual and his or her employer, but not both in the same year. Contributions by the individual are deductible whether or not the individual itemizes deductions. Employer contributions aren’t included in income. Distributions from an Archer MSA that are used to pay qualified medical expenses aren’t taxed.
A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is enrolled in Medicare. Contributions can be made only by Medicare. The contributions aren’t included in your income. Distributions from a Medicare Advantage MSA that are used to pay qualified medical expenses aren’t taxed.
A health FSA may receive contributions from an eligible individual. Employers also may contribute. Contributions aren’t includible in income. Reimbursements from an FSA that are used to pay qualified medical expenses aren’t taxed.
An HRA must receive contributions from the employer only. Employees may not contribute. Contributions cannot be included in income. Reimbursements from an HRA that are used to pay qualified medical expenses are not subject to taxes.
For more health insurance tax tips, check out our article IRS-Issued Health Insurance Tax Tips for U.S. Taxpayers
AG TAX LLP CAN HELP
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- US Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a tax consultation to discuss your US Canada cross border tax queries, please contact us at:
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
