When employees lose employer-sponsored health insurance, COBRA often becomes their immediate safety net. But COBRA is costly, and one of the first questions employees ask HR is: “Can I deduct these premiums on my taxes?”
For HR professionals, this is a tricky area. While you should never give employees personal tax advice, you will be the first point of contact for their concerns.
By understanding the basics of how COBRA premiums interact with tax rules, you can better anticipate questions, set realistic expectations, and confidently guide employees to the right resources.
Why employees ask about deductibility
COBRA premiums can feel expensive
Employees who continue coverage under COBRA suddenly become responsible for the full premium cost — both the portion they used to pay and the employer’s contribution. On top of that, a 2% administrative fee is often added. The sticker shock can be significant, especially for families.
Employees hope tax deductions can offset the cost
It’s common for employees to assume that because COBRA is a medical expense, they can “write it off” and recover some of the expense at tax time. This leads to questions for HR about how the deduction works, if it’s automatic, or if they’ll definitely qualify.
HR needs to anticipate these questions
Even though you can’t give tax advice, knowing why employees ask helps you prepare consistent messaging. Employees facing unexpected costs often feel anxious, and HR can play an important role in making sure they feel supported with clear information and appropriate resources.
Federal tax rules for deducting COBRA payments
COBRA premiums may be considered qualified medical expenses.
According to IRS guidelines, health insurance premiums (including COBRA) fall under the umbrella of medical expenses that may be deductible.
Itemizing is required
Employees can only deduct COBRA premiums if they itemize deductions on Schedule A of their federal return. Many people take the standard deduction, which means they won’t benefit from claiming COBRA premiums at all.
The 7.5% AGI threshold applies
Medical expenses — including COBRA — are only deductible to the extent that they exceed 7.5% of a person’s adjusted gross income (AGI). For example, if someone has $60,000 in AGI, only expenses above $4,500 are deductible.
Individual circumstances matter
While COBRA may qualify as a deductible expense, it doesn’t mean employees automatically get a tax break. Factors like income level, other medical expenses, and whether they itemize deductions all come into play.
HR’s role in COBRA and tax questions
Do explain at a high level
It’s fine to share that COBRA premiums may qualify as deductible medical expenses, depending on the individual’s situation. This shows that you’re knowledgeable without overstepping.
Don’t provide tax advice
HR should never tell employees whether they will or won’t qualify for the deduction. Doing so crosses into tax guidance, which HR teams should avoid.
Refer to trusted resources
Instead, HR can point employees to IRS publications, tax software providers, or encourage them to consult a tax professional. Having a standard set of resources ready can streamline responses.
Ensure consistency across the HR team
Employees may ask different HR staff members the same question. Documenting a consistent message ensures compliance and avoids confusion.
Additional tax considerations employees may ask about
State-level differences
Some states have their own rules about medical expense deductions. Employees may ask whether COBRA premiums are treated differently at the state level.
Redirecting is key
As with federal rules, HR doesn’t need to provide answers but should anticipate these questions and have a response framework: acknowledge the concern, explain it depends on personal circumstances, and recommend professional tax advice.
Helping employees evaluate COBRA’s true cost
Provide transparent cost breakdowns
Sharing the total monthly COBRA premium, including the 2% admin fee, helps employees make informed decisions. Transparency reduces frustration when they see the bill.
Encourage comparison-shopping
Employees may not realize that COBRA isn’t their only option. HR can suggest they compare coverage costs through a spouse’s plan, the health insurance marketplace, or Medicare, if applicable.
Position COBRA as a temporary bridge
COBRA can be a valuable short-term option, particularly for those in between jobs or close to retirement. Framing it as a bridge rather than a long-term solution helps employees see it in the right context.
Key takeaways for HR
- Employees will often ask if COBRA premiums are tax deductible, especially when they first see the cost.
- HR should understand the basics of how COBRA interacts with federal tax rules but stop short of giving tax advice.
- Providing consistent, high-level guidance and redirecting employees to tax professionals helps keep HR compliant while still being supportive.
- Clear communication about COBRA costs, deadlines, and alternatives empowers employees to make the best decision for their situation.
The information contained in this article is provided for informational purposes only and should not be construed as legal advice on any subject matter. The reader should not act or refrain from acting on the basis of any content included in this article without seeking tax, legal, or other professional advice. The contents of this article contain general information and may not reflect current legal developments or address the reader’s situation. ebm disclaims all liability for actions the reader takes or fails to take based on any content within this article.
