Is dental insurance tax deductible? In a nutshell, yes, it is. But only if your expenses are high enough. Although it may seem so, understanding the tax deduction is not very hard. There are different rules for sole proprietors and employees. Also, there are some qualifying conditions that you must fulfill to claim a tax deduction. So, without further ado, let’s start understanding how tax deduction works in dental insurance.
Which Expenses Qualify For Tax Deduction?
The IRS or Internal Revenue Service specifies that only medically necessary expenses qualify for a tax deduction. These expenses include preventive care like exams and cleaning, etc., and other basic and major services. Whether you get dentures or crowns, your expenditure may be tax-deductible.
But IRS also states that any type of cosmetic dentistry is not tax-deductible. Cosmetic dentistry can be anything ranging from teeth whitening to cosmetic implants. Yes, anything done for cosmetic reasons, and not medical necessity does not qualify for a deduction.
What Comes Under Cosmetic Dentistry?
Any procedure that improves the patient’s beauty of smile or teeth is categorized as cosmetic dentistry. There is a wide range of such cosmetic treatments available in the market. Some of them are Veneers, Bonding, Whitening treatments, etc. A straightening procedure like Invisalign again is a type of cosmetic treatment.
However, the demand and popularity of these treatments are relatively high. Still, insurance does not cover them. And it is even sadder that it is not even tax-deductible.
Where Are Dental Insurance Premiums Tax Deductible?
According to IRS, you can deduct your dental insurance premiums and other expenses if you buy insurance from your after-tax income. Because if you pay premiums from HSA or something similar, your premiums are already tax-deducted. And the government does not allow double tax deduction.
Another condition here is that you can only itemize those expenses that exceed your AGI (Adjusted Gross Income) by 7.5%.
Before further explaining this point, let’s understand what AGI is?
Adjusted Gross Income is your modified gross income. It sums up income from all the sources—wages, capital gains, dividends, royalties, rental income, etc. And it also minuses the deductions like student loan interest payments, retirement plan contributions, etc. And after all this plus-minus, you arrive at your AGI.
Let’s come back to our topic. If the total of premiums paid for medical and dental insurances and other out-of-pocket costs exceed 7.5% of your AGI, you can deduct it from your taxable income.
For example, say your AGI is $100,000. Now 7.5% of your AGI will come out to be $7500. So, if your total expenditure on premiums and other expenses is, say, $8000. Then you can deduct $8000 – $7500 = $500 from your taxable income.
But if your total expenditure on health is, say, $7000. Now, your dental insurance is not tax-deductible.
One more thing to note here is that the total expenditure here includes any spending you did on health, including mental health, vision care, surgeries, etc.
Also, the total AGI includes your income, the income of your spouse, and other dependants. And the total expenditure includes all the spending that happened for all of them.
How To Claim Tax Deduction?
Once you are done with the above maths, you can itemize your deductions on Schedule A (Form 1040), Itemized Deductions. Yes, you need to itemize your deductions instead of going for standard deductions.
Thus, it is always a good idea to make sure that your total itemized deductions exceed your standard deduction amount.
What If You Are Self-Employed?
Here is a big perk of being self-employed. Tax deduction works differently for the self-employed.
They can deduct the entirety of their premium payments and other expenses. Let’s see how this works.
Self-employed can adjust their income, i.e., they can deduct all the expenses incurred from their earnings. They do not need to itemize their premiums and expenses on Form 1040 Schedule A. Instead, they can show their deduction on Schedule 1, line 16, as an adjustment to their income.
However, the IRS wants you to fulfill just two conditions to avail of this fantastic facility:
- Firstly, you should be a sole proprietor. And the insurances should be in your or the business’s name.
- You report the year’s net profit on Schedule C (Form 1040 or Form 1040-SR) or Schedule F (Form 1040 or Form 1040-SR).
But there are a few limitations to availing this facility:
- A sole proprietor cannot deduct more than what he earned in a given year.
- Secondly, if you are eligible to receive medical care through a spouse’s employer-sponsored plan, you cannot avail of this facility.
- Lastly, if you are self-employed but have a job too, this may be a hindrance.
Lastly, here are a few points of caution:
- If you pay your dental insurance premiums from a Flexible Spending Account (FSA) or a Health Savings Account (HSA), you cannot claim a tax deduction. It is so because these funds are already pretax. We surely cannot expect a double tax benefit from the IRS.
- If you obtain health care from an employer-sponsored insurance plan, you cannot expect a tax deduction. Your premiums, in this case, also are already tax-advantaged.
So, Is Dental Insurance Tax Deductible?
Summarizing the above info, if you own a plan that is not employee-sponsored or from an HSA or FSA account, you are eligible for a tax deduction. But only if your total expenditure exceeds the 7.5% of your AGI.
And you are in for a treat if you are a sole proprietor. You get the whole amount deducted in this case.
Lastly, remember not to try to get a tax deduction for cosmetic treatments like veneers and teeth whitening, etc.
So, this was all in our guide about is dental insurance tax deductible. We hope you liked it and that it was informative. Now, you are all free to share your opinions and doubts in the comment section below. We reply ASAP.