itemized_medical_expenses counts a health insurance premium that was already excluded from wages as a section 125 pre-tax payroll deduction, so the same premium reduces taxable income twice.
What the model does (policyengine-us 2.2.1)
pre_tax_health_insurance_premiums is listed in gov.irs.gross_income.pre_tax_contributions, so irs_employment_income = max(0, employment_income - pre_tax_contributions) excludes it from wages (and fica_pre_tax_contributions excludes it from FICA wages).medical_expense_health_insurance_premiums returns health_insurance_premiums when nonzero, otherwise health_insurance_premiums_without_medicare_part_b plus modeled Part B premiums. It does not subtract pre_tax_health_insurance_premiums.itemized_medical_expenses adds medical_expense_health_insurance_premiums and other_medical_expenses.
Reproduction
Single filer in Texas, 2024, age 40, $60,000 of employment_income, $20,000 of other_medical_expenses, a $2,000 premium:
| Case |
Inputs |
AGI |
itemized_medical_expenses |
income_tax |
| Premium paid after tax |
health_insurance_premiums_without_medicare_part_b = 2,000 |
60,000 |
22,000 |
4,692.93 |
| Premium paid pre-tax, as the model computes it |
the above, plus pre_tax_health_insurance_premiums = 2,000 |
58,000 |
22,000 |
4,445.74 |
| Premium paid pre-tax, excluded from the medical base |
pre_tax_health_insurance_premiums = 2,000 only |
58,000 |
20,000 |
4,685.74 |
The second row is $240 below the third: the premium is excluded from wages and deducted again.
Law
IRC section 213(a) allows a deduction for medical expenses "paid during the taxable year, not compensated for by insurance or otherwise". A premium paid by salary reduction under a section 125 cafeteria plan is treated as an employer contribution excluded from gross income under section 106, so the employee has not paid it with taxed income. IRS Publication 502 ("Insurance Premiums", under "Employer-Sponsored Health Insurance Plan") says not to include premiums paid by an employer-sponsored health insurance plan "unless the premiums are included on your Form W-2", and gives the example of a federal employee whose share of the FEHB premium is paid before tax: it is not in gross income, so it cannot be deducted.
Why it matters now
No dataset populated pre_tax_health_insurance_premiums, so this was latent. PolicyEngine/microcosm#1189 starts producing it (about $180 billion, a subset of the premiums already carried in health_insurance_premiums_without_medicare_part_b). Only tax units that itemize with medical expenses above the 7.5% floor are affected.
Scope to check before changing the helper
medical_expense_health_insurance_premiums also feeds SNAP allowable medical expenses, HUD medical expenses, Medicaid medically-needy spend-down and several state deductions (Montana, Ohio, Missouri, Pennsylvania CCW and others). Those programs may count a premium the person paid whatever its tax treatment, so the fix probably belongs in the federal itemized path (and any state deduction that conforms to section 213), not in the shared helper.
itemized_medical_expensescounts a health insurance premium that was already excluded from wages as a section 125 pre-tax payroll deduction, so the same premium reduces taxable income twice.What the model does (policyengine-us 2.2.1)
pre_tax_health_insurance_premiumsis listed ingov.irs.gross_income.pre_tax_contributions, soirs_employment_income = max(0, employment_income - pre_tax_contributions)excludes it from wages (andfica_pre_tax_contributionsexcludes it from FICA wages).medical_expense_health_insurance_premiumsreturnshealth_insurance_premiumswhen nonzero, otherwisehealth_insurance_premiums_without_medicare_part_bplus modeled Part B premiums. It does not subtractpre_tax_health_insurance_premiums.itemized_medical_expensesaddsmedical_expense_health_insurance_premiumsandother_medical_expenses.Reproduction
Single filer in Texas, 2024, age 40, $60,000 of
employment_income, $20,000 ofother_medical_expenses, a $2,000 premium:itemized_medical_expensesincome_taxhealth_insurance_premiums_without_medicare_part_b= 2,000pre_tax_health_insurance_premiums= 2,000pre_tax_health_insurance_premiums= 2,000 onlyThe second row is $240 below the third: the premium is excluded from wages and deducted again.
Law
IRC section 213(a) allows a deduction for medical expenses "paid during the taxable year, not compensated for by insurance or otherwise". A premium paid by salary reduction under a section 125 cafeteria plan is treated as an employer contribution excluded from gross income under section 106, so the employee has not paid it with taxed income. IRS Publication 502 ("Insurance Premiums", under "Employer-Sponsored Health Insurance Plan") says not to include premiums paid by an employer-sponsored health insurance plan "unless the premiums are included on your Form W-2", and gives the example of a federal employee whose share of the FEHB premium is paid before tax: it is not in gross income, so it cannot be deducted.
Why it matters now
No dataset populated
pre_tax_health_insurance_premiums, so this was latent. PolicyEngine/microcosm#1189 starts producing it (about $180 billion, a subset of the premiums already carried inhealth_insurance_premiums_without_medicare_part_b). Only tax units that itemize with medical expenses above the 7.5% floor are affected.Scope to check before changing the helper
medical_expense_health_insurance_premiumsalso feeds SNAP allowable medical expenses, HUD medical expenses, Medicaid medically-needy spend-down and several state deductions (Montana, Ohio, Missouri, Pennsylvania CCW and others). Those programs may count a premium the person paid whatever its tax treatment, so the fix probably belongs in the federal itemized path (and any state deduction that conforms to section 213), not in the shared helper.