Health Insurance Tax Deductions for an NRI in the US

by Mounica Kota | Jun 8, 2020 | health insurance, health insurance premiums, tax deductions

Health Insurance Tax Deductions for an NRI in the US

As we all know, health expenses can be highly expensive so having health insurance and being able to claim a tax deduction would help save tax up to a certain extent. However, for an NRI residing in the US claiming health insurance for tax deductions depends on certain conditions. It depends on the health care services and the expenses incurred by the NRI in health insurance.

NRI Health insurance premiums and medical expenses can be tax-deductible only if they are paid out-of-pocket. Moreover, the financial condition of the NRs and from where health insurance has been received are two important factors in determining if the costs would be tax-deductible or not.

Can Health Insurance Premiums for NRIs be deductible on Federal taxes?

The Health Insurance Premiums for NRIs are classified as deductible on Federal taxes as these are the monthly payments made for the coverage which can be termed as “Medical Expenses”. There are various sources from which health insurance can be obtained by an NRI and the scope of these expenses being tax-deductible.

a.When health insurance is sponsored by an employer

The premiums for the health insurance policies sponsored by the employer are not tax-deductible. Employers would deduct the premium payment from the NRI’s payroll on a pre-tax basis. So, the employee contributions are already taking the tax-saving advantage and further deduction is not allowed. Moreover, the contributions made to HSA (Health Savings Account) are paid by the NRI on a pre-tax basis and would not be tax-deductible.

b.COBRA insurance

In the case of COBRA insurance, an NRI can continue the employer-sponsored coverage even though he is no longer working in that organization. The premiums for COBRA insurance are tax-deductible because an NRI would pay that entirely by himself on an after-tax basis.

c.When health insurance has been purchased through an insurance marketplace

In this scenario, the health insurance premium of the NRI would be tax-deductible as these would be termed as “Medical Expense”. Suppose, an NRI is eligible to be enrolled in his spouse’s health insurance program which is employer-sponsored but he opts out for that coverage then he will be unable to avail the tax deduction.

d.Medicare

The premiums for Medicare plans depending on the plan the NRI selects such as Medicare Part B, C, or D plus Medigap would be eligible for a tax deduction. In the case of Medicare Part A, the expenses would not be tax deductible if the premiums have been paid by Social Security.

How to claim tax deductions for health insurance?

There are two options offered by the IRS to claim tax deductions for health insurance by the NRIs.

Standard Deduction
Itemizing the Medical Expense

In both cases, the AGI (Adjusted Gross Income) of the NRI would be reduced and the tax to be paid would be mitigated.

If an NRI is opting for Standard Deduction, then he would not be opting out for Itemized Deductions by default. By Standard Deduction, the process of tax preparation becomes quite easy and simple. The rates for Standard Deduction in case of NRIs can be listed below.

Single Taxpayers – $12,400
Married taxpayer filing return jointly – $24,800
Married taxpayer filing return separately – $12,400
Head of Household – $18,650

In case an NRI decides to opt for itemizing the health insurance, then currently in 2020 he can only deduct those medical expenses which are allowable and exceed 10% of his AGI.

An NRI can easily decide on choosing Standard deduction or Itemization of Medical Expense by having a look at his Schedule A 1040 Form. This would give him a chance to compare his itemized expenses with Standard Deduction and decide on which one to opt for.

Health Insurance Deduction for Self-Employed NRIs

In case of an NRI being self-employed then his threshold for permissible medical expense deduction lowers down to 7.5%. Suppose, the AGI of an NRI is around $100, 00 then medical expenses which would exceed $7,500 would be eligible for tax deductions.

Those NRIs who are independent contractors can also claim the health insurance deduction under the Self-employed category. By this, a self-employed NRI’s AGI can be directly reduced by health insurance premiums.

What can and cannot be deducted from tax?

The IRS would allow for any medical expense that has been paid from the pocket prescribed by the doctor for a tax deduction. Some of the common expenses included under this list are Medical tests, Dental Insurance, Therapy, Crutches, Hearing Aids, Birth Control, Prescription drugs, etc. In addition to these expenses, some other expenses which include travel costs for health care are also tax-deductible.

However, some expenses are not tax-deductible such as co-pays, Premium tax credits, expenses related to cosmetic surgery or hair transplant, or expenses related to non-prescribed drugs, etc.

References

As an NRI in the US, can you claim a Tax Deduction for your Health Insurance?

by Mounica Kota | May 2, 2020 | health insurance, health insurance plan, NRI, self employed, tax deductions

As an NRI in the US, can you claim a Tax Deduction for your Health Insurance?

In today’s times, health insurance has become a basic necessity of life. With the spread of dreadful diseases across the world and the cost of medical facilities soaring high, health insurance is a must for every individual. By a health insurance policy, the insurance provider would meet the medical expenses that are incurred during any type of treatment undergone by the health insurance policyholder. For availing this, the policyholder will have to pay the health insurance premium regularly. As an NRI in the US, can you claim a Tax Deduction for your Health Insurance.

NRIs who are living in the US and are working sought to purchase health insurance to avoid any financial emergencies at the times of medical emergencies.

NRIs enrolled in an employer-sponsored health insurance plan

When an NRI in the US has taken a health insurance plan which is sponsored by his employer then the premiums which are paid for the health insurance plan are already tax-free. However, if the premiums for the health insurance plan are made by a payroll deduction plan and the premium payment is done by pre-tax dollars then a tax deduction cannot be availed.
Payroll deduction plans are those in which the employers of the NRIs withhold money from their paychecks for the benefits. These plans can include those for Medical insurance, life insurance premium, and retirement savings, other taxes, etc.

Tax deductions for unreimbursed expenses of NRIs

In the case of NRIs purchasing their health insurance on their own by using after-tax dollars, some tax deductions can be done on the health insurance premiums.
In the year 2019, NRIs would be allowed to deduct any qualified unreimbursed health care expenses that they have paid for themselves, their spouses, or dependents if the expenses exceeded 10% of their AGI (Adjusted Gross Income).
However, in the year 2017 and 2018 if the healthcare expenses were more than 7.5% of the AGI of the NRI then it would qualify for a tax deduction.
Apart from the health insurance premium, other expenses which can be included in this category by the NRIs are any expenses which are out-of-the-pocket such as expenses involved in surgeries, doctor’s visit, mental health care, vision care, etc.
If an NRI is interested in making deductions for the medical expenses it is advisable to itemize the deductions. The NRI must ensure that his total itemized deductions would exceed the standard deduction amount.

Tax deductions for self-employed NRIs

For self-employed NRIs living in the US, the entire health insurance premium can be claimed as a tax deduction. This deduction claimed by self-employed NRIs can be said to be a write-off to their personal income tax and will not be deducted when the NRIs are filing on the behalf of any of their businesses. For instance, a sole proprietor must enter the deduction amount in Form 1040 and not in the Schedule C Form.
But, if an NRI is self-employed and also has another job at the same time then he can preclude from this tax deduction.
If a self-employed NRI receives health insurance coverage through his spouse’s health insurance plan which is employer-sponsored, then he can also preclude himself from the tax deduction that can be availed by self-employed NRIs.
Self-employed NRIs are not eligible to claim more deduction than the amount of income they are making through their work.
Self-employed NRIs can choose any one of their businesses as the sponsor for their health insurance plan. It is not permissible for self-employed NRIs to add up their income generated by different companies to claim the maximum deduction. So, it would be wiser if a self-employed NRI would choose his most profit earning business as the sponsor for his health insurance plan.

Reducing of tax bills by NRIs

If an NRI does not qualify to make tax deductions for his health insurance either because of the cost threshold or due to the choice of taking the standard deduction, then he can choose another alternative method for reducing his tax bills.

By electing an HDHP i.e. high-deductible health plan, NRIs can avail the benefits of paying less premium for health insurance plans than normal plans. Through this, NRIs would be able to open a Health Savings Account (HSA). The money which is put into the HSA can be utilized for paying off the health care expenses which are out-of-pocket. The contributions made by an NRI towards the HSA are tax-deductible and when these are used for eligible expenses the withdrawals also become free. In some cases, the health insurance premium can be paid off by using the funds in the HSA.

However, HDHP can offer tax benefits to the NRIs but they are only advisable for the younger masses that do not need health care cover except some health emergency. It is not advisable for those masses that already have pre-existing health issues or are expecting health expenses shortly.

Hence, tax deduction by NRIs for health insurance can be made by thinking wisely and by taking into account the major criterion such as the type of employment and type of health care expenses incurred by the NRIs.