Types of Policies Allowed

• Insurance policies that pay for medical care, prescription drugs and dental care are acceptable types of policies for which premiums may be deducted. Policies that cover health-related equipment, such as wheelchairs, prescription contacts or eyeglasses, hearing aids and dentures are also acceptable to the IRS. Long-term care policies are acceptable, but life insurance, wage replacement or disability policies and policies that provide a set weekly amount while you are ill or hospitalized are not deductible.
  
  

Limits for W-2 Wage Earners

• If you are employed by another and receive a W-2 at the end of the year, you are subject to different limitations than someone who is self-employed. Your deduction for medical insurance premiums is included in your total medical deduction shown on your Form 1040 Schedule A. The amount you may deduct is limited to unreimbursed expenses that are more than 7.5 percent of your adjusted gross income. You cannot deduct premiums that you paid with pre-tax dollars such as under your employer's cafeteria plan. Only premiums that are included on your W-2 in Box 1 as wages, tips and compensation may be deducted.
  
  

Limits for Self-Employed Individuals

• If you are self-employed, you are allowed to deduct your health insurance premiums if your return shows a net profit from your business for the year. The deduction is taken as an income adjustment on Line 29 of your Form 1040. The entire amount of your premiums is deductible. The deduction is disallowed for months in which your spouse's employer, or yours if you also worked as a W-2 employee, maintained a health plan in which you could have participated. Your deduction cannot exceed the amount you earned from self-employment. If you are unable to deduct the full amount you paid for your premiums as an adjustment to your self-employment income, you may include the balance with other medical expenses on Form 1040 Schedule A under the same limitations as a W-2 wage earner.
  
  

Premiums for Medicare Coverage

• Certain premiums for Medicare coverage are deductible medical expenses. Medicare Part A premiums are not deductible unless you are voluntarily enrolled in the program as an individual not covered by Social Security or a government agency that submitted Medicare taxes. Medicare Part B premiums are deductible if you applied for this supplemental policy after becoming disabled or at the age of 65. If you applied after the age of 65, you will need to review the information sent by the Social Security Administration when you enrolled. Medicare Part D covers prescription medications and is available for those with Part A or Part B. Premiums for Part D are deductible medical expenses.