Maryland Life and Health Insurance License Practice Exam

What is the key factor determining whether an individual can claim a tax deduction on health insurance premiums?

1. Employment status

2. Income level

3. Type of insurance

4. Age of the insured

The correct answer is: Employment status

The key factor that determines whether an individual can claim a tax deduction on health insurance premiums is their employment status. In particular, for self-employed individuals, health insurance premiums can often be deducted from their taxable income, which can significantly lower their tax burden. For those who are traditionally employed, their premiums are typically paid with pre-tax dollars if offered as part of an employer-sponsored plan, which means that the deduction is not applicable in the same way because the premiums have already been excluded from taxable income. This aspect highlights the crucial role of employment status in relation to how individuals acquire and pay for health insurance, influencing their ability to claim tax deductions. Other choices, such as income level, type of insurance, and age of the insured can impact various aspects of health insurance and taxes, but they do not play a definitive role in determining the eligibility for the deduction in the way that employment status does.