Advice on healthcare premiums and tax deduction

To navigate this situation effectively, here are a few actionable tips:

  1. Adjust Withholdings: Since you and your spouse both claim “Married with 1” on W-4s, you might be under-withholding. Consider adjusting withholdings to “Married with 0” or even adding an additional amount to cover the marketplace tax credits. This should help avoid an unexpected tax bill.

  2. Review Tax Credit Eligibility: Marketplace tax credits are based on household income, so the bonus for insurance increases your taxable income. Estimating your combined household income as accurately as possible for the marketplace may help avoid a large repayment.

  3. Itemize Deductions for Health Costs: If healthcare costs (including premiums, out-of-pocket, etc.) exceed 7.5% of your adjusted gross income, you may be able to deduct some of these on your taxes by itemizing. Consult a tax advisor to see if itemizing could reduce your taxable income effectively.

  4. Employer-Arranged Health Reimbursement Arrangement (HRA): Ask your employer if they would consider setting up a Qualified Small Employer HRA (QSEHRA) instead. This could allow them to reimburse your health insurance premiums tax-free, lowering your taxable income.

These steps can help mitigate the impact on your taxes and ensure your healthcare costs don’t lead to a hefty tax bill next year.