By the time you're on Medicare, you're either already retired or maximizing savings to retire sometime soon. You might be on a tight fixed income or coasting comfortably on retirement savings. Either way, there's no reason to leave money on the table if you have unreimbursed medical expenses to lower your tax bill.
The ultimate question is: Are Medicare premiums tax-deductible? The general answer is yes, Medicare premiums are tax-deductible. If they are, how can you make the most of the deductions?
First, you'll want to explore how large your deductions could be. Are your Medicare premiums large enough to include when filing taxes? Here’s a listing of all the Medicare premiums you might be able to deduct:
- Medicare Part A (hospital insurance) is premium-free for most people because they or their spouse paid Medicare taxes on income earned for 10 or more years. However, those who haven't qualified can choose to purchase Part A coverage by paying monthly premiums ranging from $278 to $506 in 2023, depending on how long Medicare taxes were paid. That's $3,336 to $6,072 that may be deductible per person per year.
- Medicare Part B (medical insurance) requires a premium payment for every month you have this coverage, whether you have Original Medicare or have replaced it with a Medicare Advantage plan. Monthly premiums start at $164.90 in 2023 and increase to $560.50 based on higher incomes — which represents from $1,978.80 to $6,725 in possible deductions per year.
- Medicare Part C (Medicare Advantage) — which can replace Medicare Part A and Part B — offers plans with varying premiums, although 98% of plans have $0 for Part C premiums in 2022. However, plan participants still have to pay Medicare Part B's monthly premium of $164.90 or more, based on income, so $1,978.80 to $6,725 may be deductible.
- Medicare Part D (prescription drug coverage) has plans with varying monthly premiums plus surcharges based on your income. According to Statista Research, the average monthly premium for standalone Part D plans in 2023 ranges from $31 in South Dakota to $52 in New York — or $372 to $624 per year. High-income surcharges can add as much as $916.80 per year to Part D premiums, taking the total deductible to a range of $372 to $1,540.80 for the year.
- Medicare Supplement Insurance (Medigap) charges premiums based on your age, gender, location, provider, and the Medigap policy you select. The 2022 national average monthly premium was estimated at $128 but ranged from $77 for the least comprehensive coverage to $230 for the most comprehensive coverage — which implies a possible deduction from $924 to $2,760 per year.
You might ask: Can I deduct Medicare payments related to late-enrollment penalties imposed on premiums? No, they are not tax-deductible.
But Medicare isn't just about premiums. Various parts of Medicare can leave unreimbursed deductibles, copays, and coinsurance. You will also want to see if any other health-related expenses are deductible to get the most out of your tax-reduction efforts.
Medicare Expenses That Aren't Deductible
The IRS's list of health care expenses that may be deductible is extensive, including hearing aids, certain home improvements, surgeons, wigs, dental treatment, osteopaths, and more. The list of what is not deductible is just as varied, such as:
- Cosmetic surgery, unless repairing a congenital issue or a personal injury
- Funeral expenses
- Nonprescription nutritional supplements
- Health club dues
- Medical marijuana, even if it is legal in your state
How to Deduct Medicare Premiums
If you’re considering deducting medical expenses, it requires gathering receipts for unreimbursed medical expenses throughout the year you’re filing for, then running some calculations. Here are the steps you can follow:
Step One: Keep Detailed Records During the Year
Become familiar with everything the IRS qualifies as a medical or dental expense you might deduct. The IRS defines medical expenses as "payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body." It helps to print out the list of what the IRS accepts as a reference.
Then, be sure to keep copies of your receipts from those providers, including any unreimbursed expenses from pharmacies on your prescription drug plan and out-of-pocket charges you covered for your Medicare plans.
Step Two: Itemize Your Expenses for Tax Filing
Tax filing became easier for many people in 2017 when the Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction: from $6,500 to $12,000 for individual filers and from $13,000 to $24,800 for joint returns. For the 2022 tax year, the standard deduction — the amount everyone can deduct for expenses without having to list or justify them — is $12,950 for individuals and $25,900 for joint returns. For taxpayers over 65, or under 65 and blind, it is $14,700 and $27,300, respectively — and even higher if the taxpayer is over 65 and blind.
The TCJA offered another helping hand for itemizing: before TCJA, taxpayers could deduct qualified out-of-pocket medical expenses that exceeded 10% of their adjusted gross income for the year, but that figure was dropped to 7.5% — where it has stayed until today, despite threats to raise it back to 10%.
The increased standard deductions are high enough that only about 10% of taxpayers bother to itemize anymore. However, to deduct your Medicare premiums, you'll have to go through the exercise to see if your accumulated deductions are higher than your standard deduction. You may also want to do the same with other qualified deductions such as mortgage interest, charitable donations, and state and local taxes paid.
Step Three: Decide If It Is Worth Itemizing
Identify your standard deduction for the year, then determine your adjusted gross income for the same year. Next, add up all the medical deductions you have. Using those numbers, calculate to see if it makes sense to itemize because itemizing will allow you to deduct more than your standard deduction. Here is an example:
If you were over age 65 in 2022 and filing single, your standard deduction for that year would be $14,700. If your adjusted gross income in 2022 was $50,000, anything above 7.5% or $3,750 could be deductible. If you had extensive dental work, surgery, and inpatient rehabilitation that year, you might have accumulated $23,000 of unreimbursed expenditures. By subtracting $3,750 from $23,000, you have $19,250 of deductible medical bills, which is higher than your standard deduction of $14,700. In that case, it makes sense to itemize. It wouldn’t make sense if your unreimbursed expenditures weren’t higher than your standard deduction.
Step Four: File the Appropriate IRS Tax Forms
Schedule A, the form called "Itemized Deductions," is what you fill out and file before the tax deadline and submit with your IRS Form 1040 if you’re itemizing and applying your deductions. If you don't have an accountant who does your taxes, consider finding a professional to advise you or access tax software that can handle itemized deductions. (Not all software does.)
Alternatively, if you are self-employed, enter your Medicare premiums on Schedule 1 as an expense as long as your Schedule C form shows a net profit.
Frequently Asked Questions
Read on for answers to common questions about taxes and Medicare premiums.
Can I deduct my spouse's premiums?
Yes, you can deduct your spouse's premiums. The ability to do so is surprisingly relaxed. The IRS states: to include medical expenses that you paid for your spouse, you must have been married either when your spouse received the medical services or when you paid for them.
In an IRS example, after a man marries, he pays for medical expenses that his wife incurred before their marriage. He can include them in his medical expense deduction even if they file separate returns. However, if she had paid for them, he can't include them on his return. Instead, she'd have to include them on hers, but the expenses could be part of their calculation if they file jointly.
What are the limits for deducting Medicare premiums?
For Medicare premiums, unreimbursed Medicare-based deductibles or copayments, and any qualified non-Medicare medical expenses to be deductible, you can only include the medical expenses you paid for during the year.
If you're taking deductions for medical expenses as an individual, using Schedule A of Form 1040, you can only deduct the expenses that exceed 7.5% of your AGI. However, there is no upper cap on what you can deduct. Alternatively, if you’re self-employed, your deductions cannot exceed your earned income after expenses, as reported on Schedule E or C. Also, neither you — nor your spouse, if filing jointly — can be eligible for an employer health plan anywhere.
Is Medicare tax-deductible if I'm employed?
If you're an employee, your employer may pay for part or all of your health care through a group insurance plan. However, for your employer to cover your Medicare premiums is much more complicated but not impossible. The ability to do so depends on the company's size, how existing group health plans pay in relation to Medicare, and other factors. Contact your HR department to see what is available.
As an employee, you can't deduct your share of costs for employer-sponsored group plan health coverage, even if the costs are deducted from your paycheck, because they are considered paid with pre-tax dollars. However, suppose you pay health insurance premiums — including for Medicare — out of pocket with after-tax dollars. In that case, they may be deductible on Schedule A if you itemize your deductions and meet the 7.5% adjusted gross income threshold.
Can I deduct Medicare health insurance premiums if I'm self-employed?
The IRS allows self-employed individuals to deduct up to 100% of all Medicare premiums, including:
- Medicare Part A, if they don't qualify for premium-free
- Medicare Part B
- Medicare Advantage
- Medicare Part D
- Medicare Supplement Insurance (Medigap)
Deductions extend to spouses and dependents as well. Out-of-pocket costs under Medicare, such as copayments and prescription drug expenses, may also be deductible.
The IRS considers you self-employed if you're a sole proprietor (including an independent contractor), a partner in a partnership (including a member of a multi-member limited liability company that is treated as a partnership for federal tax purposes), or are otherwise in business for yourself.
According to the IRS, "Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction." These expenses can be deducted as long as the business shows a profit. However, they cannot exceed the self-employed person's earned income after expenses. For example, if the net self-employment income you report is $15,000, your deduction can't go above $15,000.
Still Have Questions?
Filing income taxes is not something you do lightly, but taking all the deductions you are eligible for can significantly impact your tax burden. Your solution? Talk to a licensed professional. Call us at 844-910-2061 to be connected with a licensed insurance agent, or visit our website for more Medicare guides.
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