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Are health insurance premiums deductible on tax returns?

By Karin Price Mueller | for

Q. Are medical insurance premiums deductible when filing a NJ-1040 return? The premiums were paid by the employee. The premium is listed in Box 14 as Section 125 and included in Box 16. I’m helping a relative with a return.

— Helping, I hope

A. It’s nice to you to help your relative.

You certainly want to get any deductions right.

Medical expenses, including medical insurance premiums, are deductible on your federal tax return to the extent they exceed 7.5% of your adjusted gross income, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

New Jersey allows you to deduct medical expenses to the extent they exceed 2% of your income, he said.

You mentioned Box 14 and Box 16 “State Wages,” which refers to the W-2 form. You also referred to IRS Section 125.

“IRS code Section 125 allows an employer to set up a premium only plan, where an employee’s insurance premium contributions can be deducted from his or her payroll on a pre-tax basis,” he said. “This can save employees up to 40% on income taxes and payroll taxes.”

The employer also saves on these taxes, he said.

“Since the medical premiums were paid for with pre-tax dollars, they are not deductible,” Kiely said. “To do so would be double dipping.”

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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for’s weekly e-newsletter.


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