The coronavirus pandemic has been a harsh wake-up call and a reality check concerning access to healthcare in the United States. Many public health analysts believe that the high COVID-19 death toll in the U.S. is intrinsically tied to the inadequate access to healthcare faced by many Americans. Other analysts think things could have been even worse if the pandemic had unfolded before implementing the Affordable Care Act in 2010.
According to the Robert Wood Johnson Foundation research, in 2021, nearly 15 million Americans could be left without Medicaid coverage once the pandemic starts winding down. Since Medicaid is the closest that Americans have to universal healthcare, this is an alarming statistic. Still, there are proposals to extend coverage through healthcare tax credits to enable families and individuals to enroll in medical insurance plans.
Understanding Healthcare Tax Credits
Compared to other countries, the U.S. healthcare system suffers from the burden of too many complexities. The topic of healthcare tax credits, for example, is not easily understood by the average taxpayer. What does the Internal Revenue Service have to do with your healthcare needs? To break down how healthcare tax credits work, let’s start with a question:
Even before the passing of the Affordable Care Act (ACA), which used to be referred to as “Obamacare,” taxation and healthcare were intrinsically tied. Even if you could not afford to pay for some medical insurance coverage before the ACA, you could still count on being able to claim healthcare expenses tax deduction when filing your annual 1040s. You can call them tax breaks if you want to, but they are items you can deduct from the amount of individual tax you owe to the IRS.
A healthcare expenses tax deduction does not necessarily need to be out-of-pocket. For many working Americans who are enrolled in medical insurance plans offered through their employers, taxation does not apply. This is due to premiums being paid with what are known as pre-tax dollars, which in turn means that a healthcare tax deduction would not be applicable. In the case of self-employed professionals who purchase insurance plans independently, they generally do so with after-tax dollars. In turn, this means that they generally can deduct healthcare expenses that were not reimbursed or paid for by their plan, but only if they cost more than 7.5% of their adjusted gross income.
Now we can get into the matter of healthcare tax credits, which is another part of the answer to “is healthcare tax-deductible?” As their name indicates, healthcare tax credits are advanced to American taxpayers to help them get insurance. These amounts are calculated based on a sliding scale that gives more to those who earn less. They can generally either be received in full upon filing a return or in advance to be reconciled in a subsequent filing.
Deducting Healthcare Tax Credits
Completing IRS Form 8962, which deals with Premium Tax Credits, is not overly complicated. From a financial point of view, getting the maximum tax credit is vital, mainly if your health condition requires the comprehensive coverage typically provided by plans with high premiums.
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