New York Child Abuse Identification and Reporting Practice Exam

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

1. When they are paid annually

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

3. When the policy is paid for over five years

4. When the individual reaches retirement age

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

The ability to deduct the premiums of an individually owned health insurance policy is linked to medical expenses exceeding a certain threshold of adjusted gross income (AGI). Specifically, if a taxpayer's total medical expenses, including health insurance premiums, surpass 7.5% of their AGI during a taxable year, they can claim the amount exceeding that limit as a deduction. This means that only when an individual incurs significant medical costs relative to their income do they benefit from tax deductions associated with those premiums. This threshold reflects the intention of tax law to provide relief to those facing higher-than-average medical expenses rather than allowing a blanket policy on all premium payments. Thus, for taxpayers, this provision is particularly relevant for making their tax filings more beneficial when facing substantial medical costs. The other options do not represent conditions under which health insurance premiums are deductible under IRS guidelines. For example, the timing of payments (annually) or the duration of the policy (over five years) do not directly affect deductibility, nor does reaching retirement age trigger automatic deductibility of premiums.