Are Medicare Premiums Tax Deductible?

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Are Medicare Premiums Tax Deductible?

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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.

In this article we’ll discuss:

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 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 2020 premiums depend on your 2018 Modified Adjusted Gross Income (specifically the amount shown on the 1st page of the Form 1040 plus your tax-exempt interest income)

  • In 2018, most beneficiaries paid the base Medicare Part B premium which was $134 per month or $1,608 if their premiums were paid for the entire year.
  • In 2019, beneficiaries paid the base Part B premium which was $135.60 per month or $1,627 for the entire year.

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 Part D premium. 

Medicare Supplement Premiums (Medigap premiums)

The coverage you receive from your Medicare Parts A and B 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 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 your Medicare premiums.  What’s even better is that you won’t have to itemize everything to get these tax-savings.

2. What if you’re not self-employed? Can you still deduct your Premiums?

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 itemize your deductions, including medical expenses (your Medicare premiums count as medical expenses if you’re itemizing). All of your itemized deductions should be evaluated and weighed with the standard deduction amounts.

 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.

Filing status2019 tax year2020 tax year
Single$12,200$12,400
Married, filing jointly$24,400$24,800
Married, filing separately$12,200$12,400
Head of household$18,350$18,650

3. How to itemize your deductions

For anyone who plans to itemize, you are able to include out-of-pocket medical expenses that go over 7.5% of your Adjusted Gross Income. All of your Medicare premiums, 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:

  1. Find out what your AGI is for the year.
  2. Organize all of your medical receipts, insurance statements, your SSA-1099, and your summary notices..
  3. Calculate how much money you spent on healthcare for the calendar year.
  4. Use IRS Form 1040 or 1040-SR.
  5. Input Medical expenses on lines 1, 2, 3 and 4 on Form 1040 or 1040-SR.
  6. The forms will walk you through calculating the 7.5% of your AGI, then you’ll subtract that number from the total medical expenses.
  7. You will be able to deduct the amount you paid for medical expenses that’s more than 7.5% of your Adjusted Gross Income (AGI).

For example,

  • 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 medical expense 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 Adjusted Gross Income (AGI). 

Final thoughts

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.

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We know that Medicare can be confusing.  We also know that everyone’s situation is different. That’s why we’re here to help. Schedule your free 30-60 minute consultation now!

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