The employee paid portion of health insurance is excluded from taxable income. Correct?
With early retirement, I can continue with a family policy through my employer, but without the generous employer subsidy. In other words, I will have a gigantic expense for health insurance premiums. Does this continue to be excluded from my taxable income ?
TIA
The employee paid portion of health insurance is excluded from taxable income. Correct?
Yes, medical insurance premiums paid through payroll deductions are exempt from Federal income tax, SS tax and Medicare tax.
With early retirement, I can continue with a family policy through my employer, but without the generous employer subsidy. In other words, I will have a gigantic expense for health insurance premiums. Does this continue to be excluded from my taxable income ?
Partially. Non-COBRA medical insurance premiums are considered eligible medical expenses. Eligible medical expenss in excess of 7.5% of your AGI are deductible on Schedule A.
COBRA insurance premiums are eligible for tax-free reimbursement from an HSA, or you can use them as eligible medical expenses to be deducted on Schedule A. But there is no double-dipping - you can only do one or the other.
AJ
Thanks, AJ
Yes, medical insurance premiums paid through payroll deductions are exempt from Federal income tax, SS tax and Medicare tax.
I guess the real distinction is that a pension is not considered wages – therefore no SS or medicare tax. To the best of my knowledge the health insurance premiums will be paid through deductions from the pension payments. But I doubt that makes a difference.
Eligible medical expenss in excess of 7.5% of your AGI are deductible on Schedule A.
Another reason to keep AGI low, by delaying SS and spending the proceeds from taxable account stock sales (which are partly capital gains). I can even delay my pension, although the reward for doing so is not as great as with delaying SS.
On the other hand, it is doubtful I would come anywhere close to itemizing otherwise. So there is likely to be little or no benefit to the deductible medical expenses. Am I thinking about that right?