PSI Ohio Insurance Practice Exam

When can the premiums of an individually owned health insurance policy be deducted from the individual's income tax?

1. When the premiums exceed $1,000 per year.

2. When the taxpayer's unreimbursed medical expenses exceed 7.5% of adjusted gross income during a taxable year.

3. When the individual is self-employed.

4. When the individual reaches retirement age.

The correct answer is: When the taxpayer's unreimbursed medical expenses exceed 7.5% of adjusted gross income during a taxable year.

The premiums of an individually owned health insurance policy can be deducted from an individual's income tax when the taxpayer's unreimbursed medical expenses exceed 7.5% of their adjusted gross income during a taxable year. This deduction is part of the itemized deductions available on a taxpayer's return and applies only to the portion of medical expenses that exceeds the specified percentage. This threshold is significant because it ensures that only those individuals who have substantial medical expenses may benefit from the deduction, reflecting the tax code's approach to providing relief for those facing high healthcare costs. It's also important to note that the IRS sets specific guidelines regarding what constitutes unreimbursed medical expenses, which include health insurance premiums, but only when the overall expenses surpass that 7.5% threshold. The other options do not accurately reflect the criteria for deducting health insurance premiums. For instance, simply reaching a specific dollar threshold in premium payments or retirement age does not inherently qualify individuals for a tax deduction. The condition of being self-employed, while it may offer some different tax benefits, does not automatically mean that health insurance premiums can be deducted without considering overall medical expenses relative to adjusted gross income.