Calling All Tax Pros

August 30, 2007 4:13 PM

My wife and I are both employed full-time and are eligible for health insurance from our employer. We decided to go a different route and chose a High Deductible Health Plan paired with a Health Savings Account. I know that HSA contributions are tax-deductible, but are our HDHP premiums deductible as well?

I've read a variety of opinions on this online - most of them mentioning something about 7.5% AGI. Although we are both employed full-time, I also do some freelance work that makes up about 15% of our yearly income.

I know that freelancers are allowed to deduct 100% of health care premiums, so long as the expenses don't exceed their freelance income. Can I deduct our premiums from my $12,000 of freelance income?

Our monthly HDHP premiums are $140 ($1,680/yr.) and we expect to contribute about $400 to our HSA (through December 2007). Premiums plus contributions for 2007 would total around $1,000.

Fire away!

posted by charlesroper to work & money (4 comments total)

Read IRS Publication 502, particularly "Health Insurance Costs for Self-Employed Persons". I'm pretty sure the answer is that you cannot deduct your premiums because (a) you are eligible for employer-subsidized health insurance, which excludes you from the self-employed insurance adjustment and (b) your total medical expense will, one hopes, not exceed 7.5% of your AGI, so you can't deduct it.

(IANA tax professional.)
posted by backupjesus at 7:13 PM on August 30, 2007

[on preview, backupjesus has it, but here's my take with a few additional details:]

You can only deduct medical expenses that exceed 7.5% of your adjusted gross income. The premiums can be included in that calculation, so they may be deductible, but only if you have other expenses that add up to the 7.5% benchmarks. This is unlikely to happen since you'll be paying expenses out of your tax-free HSA account. Your adjusted gross income includes both your freelance and employee earnings.

You can pay various medical expenses, tax free, out of that tax free HSA account, but you can not pay the insurance premiums out of it. You can, however, pay premiums for long-term care insurance from the HSA account.

Regarding the self-employment deduction for insurance premiums, see page 24 of IRS publication 502. The rule that excludes you is: "You cannot take this deduction for any month in which you were eligible to participate in any subsidized health plan maintained by your employer or your spouse's employer." Also, it says the the self-employment plan "must be established under your trade or business."
posted by beagle at 7:22 PM on August 30, 2007

And, IANATP, either.
posted by beagle at 7:23 PM on August 30, 2007

I am in HSAs for a living. You cannot deduct your premiums, but you can deduct anything defined as a qualified medical expense as defined by the pubs listed by the folks above. If you want me to e-mail you answers to any questions, I'd be pleased to do so... just let me know. (And no, I won't try to sell you anything; my company sells institutional, not individual.)
posted by Arch1 at 8:33 PM on August 30, 2007 [1 favorite]