The money contributed to a Health Savings Account (HSA) is 100% tax-deductible. This means that any
contributions will lower your taxable income. The interest earned on money in an HSA is 100% tax-
deferred. This means the money in the account can continue to grow without being taxed. Withdrawals
that are used toward qualified medical expenses are 100% tax-free. These expenses include
deductibles, copays, prescriptions, vision, and dental costs.
For those who are self-employed, health insurance premiums paid throughout the year can be deducted on their taxes. Even if you do not item deductions on Schedule A, these health insurance premiums can still be deducted on your tax return. For W-2 employees you can deduct out-of-pocket medical expenses and health insurance premiums only if you take the itemized deduction on your tax return. Employees looking to take this deduction can only do so if these premiums and other medical expenses when the amount exceeds 7.5% of your Adjusted Gross Income.
The IRS has stated that COVID-19 home testing kits can be considered a medical expense under the tax code. Personal protective equipment (PPE) that is used primarily for preventing the spread of COVID-19 also falls under this tax code. This includes masks, hand sanitizer and sanitizing wipes. However, to be eligible for deducting these items on your taxes the total for all medical and dental expenses must exceed 7.5% of your adjusted gross income.
Self-employed individuals are able to deduct all premiums paid for health insurance. This deduction is not available if the individual is eligible to participate in an employer’s health care plan but chooses to decline. If you qualify for coverage under a spouse’s healthcare plan but decline this also, the tax deduction is ineligible. Keep in mind that self-employed individuals are not able to deduct more than their generated income in a single calendar year.
Qualified, unreimbursed medical expenses that exceed 10% of your adjusted gross income for the calendar year can be deducted from your taxes. These deductions include preventative care, treatment, surgeries, dental and vision care. Prescription medications also fall into this deduction.