Are payments to cost-sharing ministries tax deductible?
Traditional Insurance and Tax Deductions
Traditional insurance is deductible under certain circumstances. If you are self-employed, you can deduct 100% of your health insurance premiums on line 29 of Form 1040.
For everyone else, you can only deduct health insurance premiums to the amount that your premiums plus out-of-pocket medical expenses exceed 7.5% of your income.
Only premiums paid with out-of-pocket money, after taxes have been taken out, can be deducted. So, if the government or your employer pays the full amount of the premium, the cost is not deductible. In addition, you cannot deduct any subsidy, and if you get your insurance through a state- or federally-run insurance marketplace, you can deduct the amount paid out of pocket only.
Healthshare Plans and Tax Deductions
Healthcare sharing ministries are not insurance, are not regulated like insurance, and do not function like insurance.
Instead, these cost-sharing ministries are nonprofit organizations, and therefore most accountants would tell you that the cost-sharing dollars are typically not deductible because they are seen as charities, and most expenses are shared with the group as a whole.
However, many CPAs we’ve talked to do claim this deduction on their clients’ tax returns. As one said, “the government wants you to have some kind of protection. I really don’t think they’ll challenge this deduction.”
Proposed Regulation Treating Health Sharing as “Medical Care”
The U.S. Department of the Treasure and the IRS have issued proposed regulations under section 213 that would make amounts paid for memberships in a health sharing plan, and for payments for Direct Primary Care (previously known as concierge medicine), as medical expenses.
In this proposal, the Treasury and IRS will interpret “insurance” to include amounts paid for membership in a health sharing plan, under Code Section 213(d). This would be for taxable years beginning after January 1. 2021. I’ll update this post once this proposal is finalized.
This is simply a brief overview and does not delve any deeper than the surface.
If you have questions about your own situation, I recommend asking your CPA what they would think about you taking this deduction, and getting their professional opinion.
For more information about health sharing plans and to learn about the plans we most often recommend, visit our Healthshare Plans page. There you can get an instant quote, and even sign up online.
HSA for America has helped thousands of people find more affordable, quality healthcare, since 2004. Contact us if you would like free assistance from professionals who can really tell you what your best options are.