Online Mortgage Calculator

An individual can purchase insurance which can cover a variety of loss, from vehicle and home damage to health and life events that could spell a financial tragedy for someone without a way to cover the unexpected costs. Are insurance premiums taxable? When an individual reaches the end of the year it is necessary to file an individual or business income tax return to pay the tax liability to the Internal Revenue Service (IRS). The guidelines for tax assessment include several ways to decrease tax liability. One way is to list qualifying deductibles on IRS Form 1040, Schedule A. Some allowable deductions are given for medical expenses, costs associated with home ownership, and miscellaneous deductions that can be found in the IRS publication that covers those allowances.

If you have read the IRS instructions and you are still unsure whether your insurance premium payment qualifies, check with your tax preparer. For most individual filers you will not be able to deduct your insurance premiums. Let’s look at some of the insurance premiums and their impact on your tax liability.

Homeowners often must pay some type of insurance. You may have to carry insurance called private mortgage insurance (PMI) to cover the lenders loss in case you lose your home to foreclosure. For a limited time, Congress has enacted a law that will allow a deduction for this premium. The hazard insurance that you are required to purchase while you are paying on your mortgage is not deductible. If you have rental property you will be able to deduct the premiums paid for any insurance associated with the real estate as a business expense on your tax return.

Health insurance premium costs are included in the total of all expenses paid for medical or dental care. If these costs exceed 7.5% of your adjusted gross income you can deduct the amount that exceeds this total. If you are filing expenses for the cost of operating a business, you may be able to claim insurance premiums paid on your business income tax return. If you pay life insurance premiums or you are the recipient of a cash payment from a life insurance policy, you will not be able to deduct the premium paid, nor will the income from the policy be taxable.

A disability insurance policy has complex rules regarding the taxable status of the premium paid and the proceeds from the policy. For most filers who pay the premium with earnings that have been taxed, the benefits may be partially or totally tax free. If the premium is paid by your employer or you pay with pre-tax earnings, then the benefits will be taxable. ‘Are insurance premiums taxable?’ for most filers the answer is no, you cannot claim the deductible nor will you have to pay taxes on the proceeds of your insurance policy.