Health insurance plan is a crucial part of any couples’ financial plan. This is because it helps to cover the cost of medical bills, ensuring that both partners are sufficiently protected in case of an unexpected illness or injury. But did you know that couples can also benefit from splitting their health insurance premiums for potential tax savings? In this article, we’ll explain how couples can split their health insurance premium payments for a potential tax benefit.
We’ll discuss what it means to split a health insurance premium and outline the benefits associated with doing so. So, if you’re a couple looking for ways to optimize your finances, read on!
An Overview of Section 80D Act
Section 80D of the Indian Income Tax Act permits couples to split their health insurance premium payments and take advantage of tax benefits. This can be done in two ways: through a joint policy or by transferring one partner’s existing policy to the other.
In either case, both partners must have valid income tax returns to claim the deduction. The amount of deduction allowed each year under health insurance 80D is capped at Rs 25000 for an individual policyholder and Rs 50000 for those with family floater policies. Under this section, both spouses’ premiums are eligible for deductions as long as they are included in the joint assessment process.
How Splitting Health Insurance Premiums Benefits Couples
By splitting health insurance premiums, couples can enjoy tax deductions on the premium amount. This can help to reduce their income tax liability and increase tax savings over a period of time. Furthermore, splitting health insurance premiums also means that each partner can choose the most suitable plan since a common policy or plan does not bind them.
Additionally, many health insurance companies, such as Generali offer discounts on premium payments if both partners purchase plans from them.
Confusion for Couples
Couples who are employed and successfully share a health insurance plan may be eligible for a tax benefit. However, it can be difficult to understand when couples qualify for the premium split deduction. In most cases, the two individuals must pay each pay at least half of their total combined premiums for them to be eligible. This means that if one person pays for all of the premiums, the other will not receive any tax benefit from splitting their health insurance costs.
In addition, only those who file joint taxes qualify for this deduction. Therefore, if you and your partner have separate filing statuses (e.g., Married Filing Separately), you will not be able to take advantage of this perk.
Understanding how health insurance premiums affect your taxes is important to get the most out of each tax year.
Documents Required for Claiming Tax Benefits
When it comes to tax benefits for health insurance premiums, the Internal Revenue Service (IRS) requires you to have certain documents to take advantage of tax breaks. Mentioned below are the major documents that you will need to have in order to claim tax benefits health insurance premium:
- Letter from your employer: Your employer must provide you with a letter confirming that the health insurance premium is being paid by them and they have granted permission to deduct the amount from your salary.
- Documents related to health insurance plan: You will also need to provide tax authorities with documents containing details of your health insurance plan, such as its start date, expiry date, coverage scope and premium amount.
- Taxpayer Identification Number (TIN): You will also be required to submit your taxpayer identification number issued by the IRS for tax filing purposes. This number is unique to each individual tax payer and it will help tax authorities verify your identity before granting tax benefits health insurance coverage.
- An affidavit from spouse: If you are claiming tax benefits for health insurance premium deducted from your spouse’s salary, then an affidavit is required from them giving their consent for deduction of the amount. Having these documents handy will help to make tax filing process easier and smoother.
Does Only Proposer Claim Tax Relief?
The tax benefits from health insurance premiums may depend on who is the proposer of the health insurance plan. Generally, tax reliefs are available for those who are the insured, which could be an individual or a group of individuals.
In case of an individual health insurance plan, tax reliefs can only be claimed by the proposer and not by other members in the same policy. This means that tax benefits cannot be shared among family members or co-owners of the same policy.
For instance, if Bob buys a health insurance policy with Mary as an additional member, then only Bob can claim tax deductions under section 80D of Income Tax Act 1961. Similarly, tax deduction will not be allowed to Mary even if she pays the premium for this health insurance policy.
What all Things are Covered in Medical Expenses?
Medical expenses are those costs incurred for preventive care, diagnosis, treatment, or cure of a health condition. Depending on your tax jurisdiction and tax filing status, you may be able to claim tax benefits for certain medical expenses paid out-of-pocket during the tax year.
Generally speaking, medical expenses related to health insurance premiums can qualify as tax deductions if made under an employer-sponsored plan or through a self-employed health insurance plan. Additionally, the cost of any qualified long-term health insurance policy can also qualify as a tax deduction. Moreover, other out-of-pocket medical expenses such as hospital stays or doctor’s visits, medical equipment, dental care, vision care, and prescription drugs can also be included in the tax deductible health insurance plan.
How Must You Pay the Premium?
Your health insurance provider will typically send out an invoice each month and give you instructions on making your payment. You have several options for paying your premiums in health insurance policy, including making a one-time payment or setting up automatic payments through direct deposit or credit card. It is crucial to ensure that you always make your payments on time so that you can continue to benefit from tax benefits associated with your health insurance plan. Depending on the type of health insurance you have, other payment options may also be available.
The Bottom Line
Splitting health insurance premium with a qualified tax partner can be a great way to maximize your tax benefits while still enjoying the coverage of a quality health insurance plan. Taking advantage of this tax benefit can help you save money and provide peace of mind that you are adequately covered in an unexpected medical emergency.
So, consider whether splitting health insurance premiums is right for you and speak with a tax professional if you have any questions.