A premium tax credit is designed to lower the total cost of health insurance plans that are already relatively expensive in the United States. You can either apply the premium tax credit on a monthly basis to your insurance bill or choose to receive your premium tax credit in the form of a refund that is put toward your federal income taxes.
The premium tax credit is only an option if you purchased an insurance plan directly from a state or federal health insurance marketplace. Furthermore, eligibility for the tax credit is typically determined when you initially apply for your health insurance plan either through a state or federal health insurance marketplace.
The credit, which was originally implemented under the Affordable Care Act, exists for the sake of assisting eligible families and individuals with low or average incomes that find it difficult to afford health insurance on their own. Additionally, the amount of health insurance tax credits that are made available is dependent on a decision by the federal government.
This means the dollar value of the tax credits will be the same amount nationwide, no matter which state you call home. If you are interested in receiving this premium tax credit, you will need to meet certain requirements related to your income level and the number of people in your family and file a tax return alongside Form 8962: Premium Tax Credit.
If you decide to itemize your deductions in the Schedule A section of Form 1040, then you might be able to deduct any and all money that you put toward medical and dental care for yourself, your spouse and your dependents over the course of that taxable year.
That said, of your total medical expenses, you will only be able to deduct the amount that surpasses 7.5% of your total adjusted gross income. Additionally, another key detail to keep in mind is that people who sign up for catastrophic coverage automatically do not qualify for tax credits related to health insurance.
What is covered?
"Medical expenses" is a very broad term, but typically, these expenses will include any type of payment that has been put toward curing, diagnosing, mitigating, preventing or treating health-related concerns, ailments or diseases. Essentially, payments pertaining to any type of treatment that aims to heal, improve or care for the body are considered medical expenses in most cases.
In that line of thinking, medical expenses that can be deducted often include the following, though this list is not all inclusive:
When considering which medical expenses can be deducted for the taxable year, you are only permitted to include medical expenses that you paid for during said taxable year. You are also required to reduce the total amount of deductible medical expenses for said taxable year by applying reimbursements that you received.
This is relevant whether you directly received the reimbursement yourself or the reimbursement was applied on your behalf to the total amount of medical expenses that you owe. If you are trying to figure out whether a specific expense of yours is deductible, refer to the official IRS website and contact a professional who has experience deducting medical expenses.
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