As you look to make decisions about your healthcare coverage during the open enrollment period, there are many things to consider — including the impact your coverage and health-related expenses have on your freelance taxes. Here’s the latest on health insurance and taxes:
Updates on the individual health insurance coverage mandate
- The 2019 tax year is the first one since the introduction of Obamacare in which the Affordable Care Act’s individual Shared Responsibility Payment, or individual mandate, no longer applies. This fee was collected by the IRS from taxpayers who could afford health insurance but who chose not to buy it.
- Some states have introduced a new individual health insurance mandate which requires you to have qualifying health coverage — or to pay a fee in lieu of it — with your 2019 state taxes. These states include the District of Columbia, Massachusetts, and New Jersey. In 2020, California and Vermont will have this mandate. There are several other states considering this as well.
- If you live in a state that requires you to have health coverage and you don’t have coverage (or an exemption), you will likely be subject to a state tax fine.
- If you buy health insurance through the state or federally run health insurance marketplaces, you can deduct only the portion of the premium you pay out of your own pocket. You cannot deduct the amount of any subsidy.
- If your health insurance premiums are paid entirely by your employer or the government, you cannot deduct the cost.
- While not having health insurance doesn’t add to your tax bill in 2019 and beyond, it will eliminate your ability to reduce your taxable income by deducting the cost of your health insurance premiums. This means that unless you have other deductions, you may need to factor in paying more in tax. Also, you will still be paying the same amount of Medicare and Social Security taxes.
Given changes under tax reform to the standard deduction (now at $12,000 instead of $6,500), you would have to have a significant number of qualified health-related deductions to make it worth itemizing them. However, these are some of the deductions:
- Dental expenses such as veneers, braces and root canals.
- Contact lenses and glasses.
- Medical devices
- Psychiatric and psychological treatment
- Preventative care
- Prescription medicines
- Mileage for travel to and from medical appointments and monthly insurance payments.
Keep in mind that most cosmetic surgeries and over-the-counter health products are not deductible. If you anticipate having a lot of healthcare bills, the medical expense deduction can help defray your costs. For this tax year (2019) the floor to deduct qualified medical expenses is 10 percent of your gross income. This applies only to unreimbursed allowable medical care expenses for the current tax year.
Using a Health Saving Account (HSA) for qualified medical costs is a good idea because it allows you to use pre-tax dollars to pay for them as long as you use the money you set aside within the time period allocated by your plan administrator.
Getting the appropriate healthcare coverage is an important decision. Open enrollment season is the perfect time to look at your current health insurance status, your healthcare costs, and any possible tax deductions you may have for the current tax year. This will help you make wise healthcare spending decisions for the coming year.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union* and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, http://www.cpaforfreelancers.com— which also features a new blog, how-to articles, and a comprehensive freelance tax guide.
*Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.