How to Calculate Qualified Health Plan Expenses?

Trying to calculate your Qualified Health Plan Expenses? Check out our blog post for a step-by-step guide on how to do just that!

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Introduction

The Internal Revenue Service (IRS) provides guidance on how to calculate qualified health plan expenses. This information is important for tax purposes, as qualified health plan expenses can be used to deduct certain medical expenses on your federal income tax return.

To calculate your deduction for qualified health plan expenses, you will need to know the following:
-Your total medical expenses for the year
-The amount of your Adjusted Gross Income (AGI)
-The percentage of your AGI that you wish to deduct

Total medical expenses must exceed a certain percentage of your AGI in order for the deduction to apply. For the 2020 tax year, this threshold is 7.5% of AGI. This means that if your total medical expenses are less than 7.5% of your AGI, you cannot take the deduction.

If you are eligible to take the deduction, you can deduct the amount of your total medical expenses that exceeds 7.5% of your AGI. For example, if your AGI is $50,000 and your total medical expenses are $5,000, you can deduct $2,500 (the amount by which $5,000 exceeds 7.5% of $50,000).

You can deduct qualified health plan expenses on both an annual and a monthly basis. To calculate your monthly deduction, divide your total annual deduction by 12.

What are qualified health plan expenses?

Qualified health plan expenses are those that are necessary and essential to the maintenance of your health and well-being. They include, but are not limited to, your monthly premiums, deductibles, copayments, and coinsurance.

How to calculate qualified health plan expenses?

To calculate your total qualified health plan expenses, you’ll need to add up the following:

-Your monthly premium
-Any out-of-pocket expenses for deductibles, copayments, and coinsurance
-Any other amounts paid to the health plan for services not covered by your insurance (such as dental or vision care)

If you have questions about what counts as a qualified health plan expense, you can contact your health insurance company or the Marketplace.

Examples

Below are two examples of how to calculate your own QHP expenses.

Example 1:
You are single and your Modified Adjusted Gross Income (MAGI) is $45,000. In 2016, the national average premium for a mid-level Silver plan is $296 per month, or $3,552 annually. You would pay $294 per month, or $3,528 annually in premiums for a Silver plan. To calculate your subsidy, you would take 2.35% of your MAGI ($45,000 x .0235 = $1,057), and subtract it from the cost of the premium ($3,528 – 1,057 = $2,471). This means you would be responsible for paying $2,471 per year – or approximately $206 per month – for your health insurance coverage. The government would pay the rest.

Example 2:
You are married and have two children. Your MAGI is $60,000 and your spouse’s is $55,000. The average cost of a family policy in 2016 is $trace ElementsSilver$1 allpations Medicaid/CHIP Private1exchange$600 per month ($7200 annually). You would pay 5.4% of your income for premiums ($60,000 x .054 =$3240), or$266 dollars eachHealthStatus Careimeo /getty imagesmonth. Your spouse would pay 2.35%oganizations($55Professionals 000 x .0235=$cial needs Children with medical needs 1These subsidies don’t apply to dental plans.)=$1 278) which comes to$107 eachCareCreditmonth toward Health savings accountsthe family policy through the Private Exchangepolicies Carefirst polio.$266 + monthly illnesses and conditions such as diabetes & allergies After hours clinics 7 day physician access.$107 = monthly illness =$373avings accountsContact lenses routine eye exams Discounted group Fitness memberships HealthEquity fitness reimbursements = adult preventative care = wellness services HRA reimbursement pet health insurance HealthEquity Dental coverage routine exams & cleanings Specialists Orthodontia (braces) =$60 000 – In-network services Out-Network Services Emergency Services Co-insurance Co-pays Deductibles Maximum out-of-pocketa Premera Life Insurance Short & long term disability insurance Critical illness cancer insurance Hospital indemnity insurance Karis Group Life Insurance accidental death & dismemberment (AD&D) insurance=Cost of Living Allowance When planning an international relocation looking at the “big” questions like housing options education for children transportation issues and medical care are often topmost in our minds But what about other factors that can impact our quality of life – like the availability and cost of basic necessities? Here’s where a Cost of Living Allowance can help! A COLA is an allowance provided to help employees meet these kinds of everyday living expenses when they are transferred to a new location with a higher cost of living For example if you’re moving from Boise Idaho to New York City you’ll likely find that almost everything costs more there – from housing and transportation to food and clothing A COLA can help you make ends meet while you adjust to the new cost of living in your new location
COLAs can also help offset unexpected increases in costs – like a sudden jump in gas prices That’s why many companies choose to provide their employees with a COLA as part of their compensation package Even if your company doesn’t offer a COLA as part of your benefits package there are other ways to get help with living expenses When negotiating your salary for a new job be sure to ask about factors that could impact your cost of living – like whether housing is provided or if there is a stipend for transportation costs If you’re relocating on your own it’s also important to research the cost of living in potential locations ahead of time so you can be prepared for what lies ahead

Conclusion

Eligible taxpayers can receive a tax credit to help offset the cost of premiums for qualified health plans. The amount of the tax credit is based on the taxpayer’s income and the cost of the premium.

To calculate your QHPE, you’ll need to know your modified adjusted gross income (MAGI) and the premium amount for your qualified health plan.

Your MAGI is your adjusted gross income plus any foreign earned income excluded from taxation.

The premium amount for your qualified health plan is the monthly premium for the second lowest cost silver plan available to you through the Marketplace, multiplied by 12.

If you’re married filing jointly, you’ll add your spouse’s MAGI to your own to calculate your total MAGI. If you’re married filing separately, you’ll use only your own MAGI.

Once you have your total MAGI and the premium amount for your qualified health care plan, you can use this information to fill out Form 8962 and figure out your tax credit.