Are Medicare premiums tax deductible? It may be possible to deduct your Medicare premiums from your federal taxes. In this post, we’ll go over the criteria you’ll need to meet in order to save money by deducting Medicare premiums from your taxes.
What Medicare premiums will I have to pay?
There are over 60 million Americans currently enrolled in Medicare and many of them pay additional premiums to improve their level of coverage. These premiums can add up very quickly, especially if you’re paying for you and a spouse. For most people, they will not pay a premium for their Medicare Part A. However, Medicare Parts B and D will come at a cost.
Quick review: The 4 parts of Medicare:
- Medicare Part A – This is your inpatient hospital, hospice, and skilled nursing facility insurance
- Medicare Part B – this covers your visits to your doctor, the majority of outpatient services, diagnostic tests, and durable medical equipment
- Medicare Part C – this is also known as the Medicare Advantage program where you decide to use either Original Medicare or Medicare Advantage
- Medicare Part D – this is prescription drug program run by Medicare
Medicare Part A Premiums
Your Medicare Part A is based on your work history which is why it’s typically premium free for most people. You will not have to pay Part A premiums if you have paid Medicare taxes for 40 or more quarters (during your working/employment years).
Medicare Part B Premiums
Your monthly Medicare Part B premium for the current year will depend on your modified adjusted gross income from 2 years ago. In other words, what you reported on the Form 1040 from two years prior to this year.
This can get confusing really fast, so let’s look at an example:
Your 2023 premiums depend on your 2020 Modified Adjusted Gross Income (specifically the amount shown on the 1st page of the Form 1040 plus your tax-exempt interest income)
- In 2021, most beneficiaries paid the base Medicare Part B premium which was $148.50 per month.
- In 2022, most beneficiaries paid the base Part B premium which was $170.10 per month.
If you’re a higher-income individual, you will have to pay a surcharge for your Medicare Part B coverage in addition to the base premium.
Medicare Part D Premiums
Medicare Part D plans provide you the opportunity to purchase prescription drug coverage. Part D premiums will vary and depends on the plan you choose. If you qualify as a high-income individual, you will have to pay a surcharge on top of your base payment.
Medicare Supplement Premiums
The coverage you receive from your Medicare will not cover all of your health care expenses. There will be coverage gaps that you will experience including deductibles, copayments and coinsurance. When you pay for a Medicare Supplement policy (also known as Medigap), it can cover some or all of your coverage gaps. These Medicare plans are sold by private insurance companies.
Are Medicare Premiums Tax Deductible?
Yes they are, but you need to understand how to qualify for a tax deduction. Many Medicare beneficiaries will have a chance to deduct their Medicare premiums when they file their federal taxes. It’s frequently overlooked and isn’t very difficult. Let’s see if you can qualify:
How to deduct Medicare premiums
1. Self-Employed Tax Deduction For Medicare Premiums
For anyone who is self-employed or has an S corporation as a shareholder-employee, you will be able to claim an above-the-line tax deduction for health insurance premiums; this includes Medicare premiums. What’s even better is that you won’t have to list everything to get these tax-savings.
2. Are Medicare Insurance Premiums Tax-Deductible If You’re Not Self Employed?
Yes! You don’t have to fall under the self-employed category in order to deduct your premiums. It’s possible to include them as itemized deductions on the Schedule A.
To list your deductions, including medical expenses (your Medicare premiums qualify if you’re itemizing). All of your deductions should be evaluated and weighed with the standard deduction amounts.
If you choose to use the itemized deduction strategy, you will only be able to deduct your medical expenses that go over a certain amount.
The majority of individuals come out ahead using a standard deduction, however the optimal approach is going to depend on each person’s specific situation.
3. How To Itemize Medicare Costs
For anyone who plans to itemize, you are able to include out-of-pocket health care expenses that go over 7.5% of your Adjusted Gross Income (AGI). All of your premiums for Medicare, copays, deductibles, and coinsurance can be counted towards total medical costs.
Here are the steps you can follow to find out the amount you may deduct for your healthcare expenses:
- Find out what your AGI is for the year.
- Organize all of your medical receipts, insurance statements, your SSA-1099, and your summary notices..
- Calculate how much money you spent on healthcare for the calendar year.
- Use IRS Form 1040 or 1040-SR.
- Input your expenses on lines 1, 2, 3 and 4 on Form 1040 or 1040-SR.
- The forms will walk you through calculating the 7.5% of your AGI, then you’ll subtract that number from the total expenses.
- You can deduct the amount you paid for medical expenses that’s more than 7.5% of your AGI.
- Let’s say your AGI is $40,000.
- You’ll be able to deduct medical expenses that is more than 7.5% of $40,000 (which in this example would be $3,000).
- If you had $5,000 in medical expenses, you’d be able to include $2,000 in your itemized deductions.
In addition to those, there are other costs that may not be covered by your Medicare benefits such as long-term care, dental, hearing, and vision expenses.
Key Point: You are only allowed to deduct the portion that goes over 7.5% of your (AGI).
If you’re still confused, ask for help
All of us can get intimidated by tax liabilities and every year brings new laws and application tweaks. Many of which make tax compliance seem more difficult than ever. Regardless of whether you file your taxes on your own or seek the help of a tax pro, the deductions you can receive can help your bottom line.
This post was provided as an informative and a background overview for educational purposes. As with any tax related issue, you should always seek counsel and advice from a licensed tax professional regarding any questions about your specific tax circumstances.
Michael Quinn is an independent licensed insurance agent with a passion for helping others navigate the complex world of Medicare insurance. With over a decade of experience in the field, Michael has established himself as a trusted advisor to countless individuals seeking guidance on their healthcare coverage options.
In 2013, Michael obtained his license as an insurance agent, laying the foundation for his successful career in the industry. Prior to that, he earned his Masters Degree in Communicative Disorders from the University of Central Florida, which equipped him with strong communication and interpersonal skills.
Driven by a genuine desire to make a positive impact on people's lives, Michael co-founded REMEDIGAP in 2013. It was created as a dedicated platform that aims to educate individuals about Medicare insurance. Through REMEDIGAP, Michael provides comprehensive resources and unbiased information to empower individuals to make informed decisions about their healthcare coverage.
With his extensive knowledge and expertise, Michael has been able to guide thousands of individuals towards finding the most suitable Medicare insurance plans tailored to their unique needs. His dedication to his clients' well-being, coupled with his passion for simplifying complex insurance concepts, has earned him a reputation as a compassionate and reliable advisor.
His work has appeared on many blogs and websites including, USA Today, Yahoo.com, Nerdwallet, Think Advisor, and REAL SIMPLE.