Health insurance and other forms of insurance are a great way to ensure that your family receives proper health care, not just when they have a problem, but also for preventative care. Many would not get immunizations, or proper care if they did not have health care.
Health insurance can be very expensive and for many the cost of premiums is a deterrent, or a reason for not getting insurance. However, there are some tax benefits for getting insurance. What are they? How do you qualify for them? The answer to these questions is simply that there are tax implications with insurance, and benefits for getting it. Wow, the government is actually cutting us a break!
Taking advantage of the tax implications of insurance is a smart way to protect your family, and pay less. If you have a monthly premium, or annual premium amount, the amount you spend will be that much off your taxable income, because you aren’t taxed on the amount you spend.
Many times people choose to get insurance through their place of employment just for the tax benefits. So, let’s take a look at what the tax implications for insurance are, some of the rules, and what the IRS has to say:
– The Internal Revenue Service has ruled that domestic partners can not be considered spouses for tax purposes. So, if you choose to get insurance for your partner, the money must be paid after taxes, not before like with spouse insurance monies.
– Employers are obligated to report and withhold taxes on the fair market value of the domestic partner coverage. But this is not true for health insurance coverage for legal spouses, which is not taxable income to the employee.
– You can make pre-tax deductions by placing money in a “flexible spending accounts.” The money contributed to these accounts known officially as IRC Section 125 cafeteria plans — can go to medical expenses not covered by health insurance, such as prescription eyeglasses, medicines, psychological counseling and the like.
– Unless a domestic partner qualifies as a dependent under the IRS definition, premiums for domestic partner coverage cannot be offered on a pre-tax basis. Out-of-pocket medical expenses for domestic partners also cannot be paid out of a flexible spending account.
When it comes to tax implications of insurance, it is simple.if you are purchasing your own insurance, the amount of money you spend on it, or your premium, should come from pre-taxed dollars.
Obviously the above examples are the exception to the pre-tax dollar rules. Obviously, you don’t want to think that you are getting the tax rules for someone who is legally not considered a dependant, or whatever it may be. So make sure that whomever you are getting pre tax dollar insurance for qualifies for it.
Because health insurance is such an important thing to buy for your family, the government has given you some benefits for it. Protecting your family from the risks of not having proper health care should be a priority. So, take advantage of the benefits of being able to pay your insurance premiums and not paying taxes on that money.
If you have any questions about the laws, or tax implications, and rules for what you can do with your flexible spending account, etc, you should consult either the HR person at your work, or a tax attorney.
Talk to your insurance agent, human resource person, or hire an attorney and make sure that you are taking advantage of your flexible spending for everything from bandaids to prescriptions.