When are Medicare premiums tax-deductible?

“Premiums for all Medicare Parts (A, B, D, Medicare Advantage, and Medigap) are tax-deductible, but there are some rules about who is paying, who is covered, and where the deduction is allowed,” says Mark Seid, CPA, USTCP, instructor at Western CPE. 

• Who is paying? An individual who pays Medicare premiums can claim a medical expense deduction for the amount paid.
  
• Who is covered? If the individual files a joint income tax return, the amount paid for Medicare premiums can be claimed for either or both spouses and for any dependents.
  
• Where is the deduction allowed? “This is where it can get complicated,” says Seid, who is a former internal revenue agent for the IRS. Most people will not get any benefit from trying to deduct Medicare premiums, because the premiums are a medical expense, and you are allowed to deduct only the amount of your medical expenses that exceed 7.5% of your adjusted gross income (AGI) for the year.  

For example: A married couple, filing taxes jointly, has an AGI of $60,000. In order to consider deducting Medicare premiums, their itemized medical expenses must exceed $4,500 which is 7.5% of $60,000.

If the couple’s qualified medical expenses are $10,000, then they could deduct $5,500 ($10,000-$4,500) if they itemize deductions on their taxes.

What medical expenses qualify as itemized deductions?

Common out-of-pocket health expenses that may be deducted include, but are not limited to:  

• Visits to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
• Inpatient hospital care or residential nursing home care
• Treatment of alcohol or drug addiction and smoking cessation programs
• Certain weight-loss programs tied to a physician’s diagnosis
• Insulin and other prescription drugs
• Reading or prescription eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, and dentures
• A guide dog or other service animal to support a disabled person
• Transportation for medical care 
• Long-term care insurance premiums

Are the options different for people who are self-employed? 

Yes, says Seid. “Self-employed individuals will be able to claim Medicare premiums as an above-the-line deduction.” Medicare premiums for coverage of the taxpayer, their spouse, and any dependent under age 27, are allowed as an above-the-line deduction (deducted from your gross income to calculate your adjusted gross income) for self-employed health insurance. The deduction is limited to the individual’s net earnings from self-employment.

In addition, special rules for partners and certain S corporation shareholders allow businesses to reimburse their owners for Medicare premiums. With specific reporting rules being met, he says, the Medicare premiums can become an above-the-line deduction. 

How else can you save money on Medicare premiums?

If you had a Health Savings Account (HSA) prior to enrolling in Medicare, you can use those tax-free funds to pay for Medicare premiums. Contributions to an HSA are tax deductible and earnings are not taxable. Distributions are not taxable if they are used to pay for qualified medical expenses, such as Medicare premiums and deductibles. Medigap premiums, however, are not qualified medical expenses for purposes of your HSA.