In his 2006 Budget request, President Bush will propose that individuals who pay for their own personal medical coverage be allowed to deduct the cost from their Federal Income Taxes. People who pay for their own coverage in California would still pay State income taxes on the medical insurance premium. Currently, only sole proprietors and employers can deduct the California health insurance premiums from their income taxes as business expenses. President Bush’s proposal would encourage individuals and families to purchase their own coverage by eliminating a huge tax penalty. Medical insurance in California is also tax deductible for the self employed and for companies but not deductible for individuals. Employees who work for companies that offer group medical coverage in California are able to pay the premium for dependents on a before tax basis when an employer has established a cafeteria section 125 plan. Section 125 of the Federal Tax Code allows premiums to be paid pre-tax and also child care costs and un-reimbursed medical expenses (e.g., the insurance deductible.) (For a complete description of premium only section 125 plans, visit "Section 125 plans help when employees pay part of the premium") If approved by Congress, the Bush Administration estimates that the tax deductibility of an individual and family medical insurance will cost $28.5 billion over the next ten years. Low-income individuals and families would not benefit greatly from the tax deductibility of medical insurance premiums because they pay relatively little income taxes. To encourage low-income households to purchase their own medical coverage, the Bush Administration is proposing a "health insurance tax credit." This would effectively pay people to buy their own individual and family health coverage. The Bush Administration estimates that the tax credit will cost about $74 million over the next ten years. Also, President Bush's budget will propose giving small employers a tax credit to encourage them to partially fund the medical insurance plan of a Health Savings Account. The proposed credit, according to a White House press release (http://www.whitehouse.gov/news/releases/2004/09/20040902.html) would reimburse employers for the first $500 they deposited into HSA accounts for families and $200 for individuals. The White House estimates that the Federal income tax credit for small employers offering group medical insurance would cost $19.2 billion over the next ten years. |
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California Health Insurance |
Group Health Insurance in California |
Health Savings Accounts | |
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