Tax season can be stressful, and if you’re like most people, you might not immediately think about health insurance when preparing your taxes. However, your health coverage plays an important role in your tax filing. From understanding the necessary tax forms to maximizing tax benefits through Health Savings Accounts (HSAs), there are plenty of ways to make sure your health insurance works for you during tax time.

Let’s walk through some essential steps to help you navigate the process with confidence and take advantage of all the benefits available to you.

Understanding Health Insurance Tax Forms

When you file your taxes, you’ll likely encounter health insurance-related tax forms. These forms provide proof of your coverage and are important for accurately reporting your health insurance status. Here’s a quick breakdown of the key forms you might receive:

• Form 1095-A: This form is for individuals who purchased health insurance through the Marketplace. It details the months you had coverage, the premiums paid, and any advanced premium tax credits you received.
• Form 1095-B: Provided by health insurance companies, this form confirms that you had minimum essential coverage. It’s common for individuals covered under Medicaid, CHIP, or certain private plans.
• Form 1095-C: If you’re covered by a health insurance plan through your employer, you’ll receive this form. It outlines the coverage offered by your employer and whether it met affordability standards.

It’s essential to check these forms for accuracy. If you find any errors, contact the issuer for corrections before filing your taxes. These documents not only ensure compliance but can also help you identify potential tax credits or deductions.

Using Health Savings Accounts for Tax Benefits

If you have a Health Savings Account (HSA), tax season is the perfect time to maximize its benefits. HSAs are designed for individuals with high-deductible health plans (HDHPs) and offer significant tax advantages.

Here’s how you can leverage your HSA during tax time:

• Contributions are tax-deductible: Any money you contribute to your HSA during the tax year can be deducted from your taxable income, lowering your overall tax burden.
• Earnings grow tax-free: Interest and investment gains within your HSA are not taxed, allowing your savings to grow over time.
• Qualified withdrawals are tax-free: When you use HSA funds for eligible medical expenses, such as doctor visits or prescription medications, the withdrawals are not taxed.

For 2024, the contribution limits for HSAs are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution allowed for those 55 and older. If you didn’t max out your HSA during the previous year, you have until the tax filing deadline (April 15) to make additional contributions for the prior year.

HSAs not only save you money on taxes now but also serve as a long-term savings tool for future healthcare expenses. Make sure to report your HSA contributions and distributions accurately on Form 8889 when filing your taxes.

Tax Credits and Deductions for Health Insurance Premiums

Health insurance can also help you save on taxes through available credits and deductions. If you purchased coverage through the Health Insurance Marketplace or are self-employed, there are key opportunities to reduce your tax liability.

Here’s how health insurance premiums can work in your favor during tax season:

• Premium tax credits: If you bought your health plan through the Marketplace and qualify based on your income, you may be eligible for a premium tax credit. This helps lower the cost of your monthly premiums.
• Self-employed health insurance deduction: If you’re self-employed, you can deduct the full cost of your health insurance premiums for yourself, your spouse, and your dependents. This deduction directly reduces your taxable income.
• Itemized medical expenses: If you itemize your deductions, you can include out-of-pocket medical expenses, including health insurance premiums, that exceed 7.5% of your adjusted gross income (AGI).

These credits and deductions can make a significant difference, so it’s worth consulting with a tax professional to ensure you’re taking advantage of every opportunity.

Penalties for Not Having Qualifying Health Insurance

While the individual mandate penalty for not having health insurance was eliminated at the federal level starting in 2019, several states still require residents to maintain qualifying health coverage or face penalties.

If you live in one of these states, you may need to provide proof of coverage when filing your taxes:

• California
• Massachusetts
• New Jersey
• Rhode Island
• Washington, D.C.

Penalties vary by state and are often calculated based on a percentage of your income or a flat fee, whichever is higher. To avoid unexpected fines, make sure your coverage meets your state’s requirements and that you have the necessary documentation, like a Form 1095-A, 1095-B, or 1095-C.

How to Prepare for Next Year’s Tax Season

Tax preparation doesn’t have to be a last-minute scramble. Planning ahead can save you time, money, and stress when next year’s tax season rolls around.

Here’s how to stay on top of your health insurance-related tax needs:

• Keep your forms organized: Store your 1095 forms and other tax documents in a secure, accessible place so they’re easy to find when you need them.
• Track your medical expenses: Maintain a record of out-of-pocket healthcare costs throughout the year to simplify itemizing deductions if needed.
• Maximize HSA contributions: Contribute regularly to your HSA to reduce your taxable income and build savings for medical expenses.
• Review your coverage annually: Ensure your health insurance plan continues to meet your needs and complies with any state requirements.
• Consult a professional: Work with a tax advisor or insurance expert to make sure you’re making the most of your available credits, deductions, and savings opportunities.

By staying proactive, you’ll be well-prepared to handle your taxes next year without any surprises.

Get Expert Help for Health Insurance and Tax Season

Health insurance and taxes might not seem like a natural pair, but understanding how they work together can save you money and simplify your tax season. From maximizing HSA benefits to ensuring compliance with state mandates, there are plenty of ways to use your health coverage to your advantage.

If you have questions about your health insurance or need help finding a plan that works for you, The Integrity Agency is here to assist. Our team can guide you through your options and help you plan for the year ahead. Contact us today to learn more about how we can support your health insurance and financial goals.