The Internal Revenue Service (IRS) allows American citizens to deduct personal expenses from their taxable income each year. However, the Internal Revenue Code is particular about what can be deducted and who can claim these deductions. Therefore, not all regularly incurred expenses are eligible for deduction.
Federal deductions decrease the amount of income subject to federal income tax and reduce an individual’s burden during tax season. Therefore, many American citizens — including Medicare beneficiaries – look for appropriate tax deductions they can make each year.
When on the hunt for taxable deductions, Medicare beneficiaries often wonder what Medicare-related costs can catch them a tax break. To prepare for your Medicare-related tax deductions, being informed is key to getting the most out of your tax return.
Is Medicare Tax-Deductible?
As a Medicare beneficiary, you’re probably wondering if your monthly Medicare premiums are tax-deductible. The short answer is yes! Medicare premiums are tax-deductible – but only above a certain threshold.
Specifically, Medicare beneficiaries may only deduct Medicare expenses from their taxes if their total deductible medical and dental expenses exceed 7.5% of their adjusted gross income (AGI). If you meet this qualification, you will need to complete Schedule A of Form 1040.
The amount you deduct is subtracted from your gross income. Your taxable income (after deductions) will ultimately determine what you owe in taxes.
To be clear, Medicare premium tax deductions don’t only apply to Original Medicare. If the amount of your total medical and dental deductions is greater than 7.5% of your gross income, you can deduct premiums for your Medicare Part A (if applicable), Part B, Part D, Medicare Advantage, or Medicare Supplement plan as well.
The Four Major Categories of Tax Deductions
To better understand how Medicare premium tax deductions work, it’s important to be familiar with the basics of how tax deductions work in general. There are four primary categories of tax deductions. These are business deductions, standard deductions, above-the-line deductions, and below-the-line deductions. We explain in detail what each means in the chart below.
|Business Tax Deduction||Standard Tax Deduction||Above-the-Line Tax Deduction||Below-the-Line Tax Deduction|
|The calculation of net profit versus net loss for business owners. Business owners must include their business earnings when they file their tax returns.||The amount the IRS allows as a set deduction based on the number of people in your household. This amount changes each year, and the IRS website has a tool you can use to calculate your standard deduction.||The amounts deducted from your annual income to calculate your adjusted gross income. Examples include student loan interest, retirement contributions, work-related moving expenses, and alimony.||Expenses you itemize on your Schedule A attachment. These costs include miscellaneous business costs, as well as medical and dental costs, which can include Medicare premiums.|
Tax-Deductible Medicare Premiums for the Self-Employed
If you earn a profit from self-employment and are on Medicare, you may deduct your entire Medicare premium cost from your taxable income. If you’re married to another Medicare beneficiary, you may also deduct their Medicare premium cost as well.
To qualify as self-employed by the standards of the IRS, you must be one of the following:
- A sole proprietor or independent contractor in a trade or business
- A member of a partnership in a trade or business
- Otherwise in business for yourself
What Medicare Expenses Are Applicable for Deductions?
Not all Medicare expenses are applicable for tax deductions. Medicare premiums are tax-deductible because the IRS considers them a medical expenditure and they follow the guidelines for this type of deduction. Medical expenses are only deductible if the taxpayer itemizes them in their personal income tax returns.
Any costs associated with the treatment or diagnosis of a medical condition or an injury can also be deducted. This includes preventive care and the cost of any medical equipment or supplies.
The IRS provides a list of deductible medical expenses. If you aren’t sure what counts as a tax deduction, we recommend referencing their list.
There are many items on the medical expenses list you may not initially consider. For example, the cost of altering your home to install medical equipment may be a medical deduction, as may transportation costs.
Because most Medicare beneficiaries are 65 years of age and older, and many are retired, their AGIs skew lower. Thus, the average Medicare recipient may benefit from deducting Medicare premiums from their taxes.
How to Get Help with Your Medicare Costs
We hope you now feel better informed about tax deductions for your Medicare costs. Medicare isn't free, so we all want to save money wherever possible.
Many beneficiaries want extra coverage but are hesitant to enroll because of the premium price sticker. If this sounds like you, we can help work within your budget! We assist beneficiaries in finding the best Medicare Supplement (Medigap) and Medicare Part D prescription drug plans available.
If your new knowledge of tax-deductible premiums makes you more comfortable shopping around, please call us at the number above. We also have an online rate form you can complete if you’d like an agent to reach out to you soon with information about your options.