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Are Medicare Premiums Tax Deductible?

"Are Medicare Premiums Tax Deductible?" text over image of tax forms

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Just the Essentials...

  • The Medicare system is funded by taxpayer dollars.

  • Self-employed individuals commonly deduct Medicare expenses from their taxes.

  • Yes, you can deduct Medicare expenses from your taxes even if you aren’t self-employed.

  • If you choose to itemize your Medicare costs as medical expenses, you can only deduct them to a certain amount.

So, Tell Me, Are Medicare Premiums Tax Deductible?

Medicare and taxes have more in common than you think. In addition to being complex and confusing at times, both can yield deductions that provide some relief to your wallet. This knowledge leads us to a common question: are Medicare premiums tax deductible?

Well, the short answer is “yes.” However, with that “yes,” a few conditions apply.

What, exactly, may those conditions be? Keep reading to learn more about how your Medicare premiums may be able to save you some money when tax time rolls around.

Taxpayer Dollars Keep the Medicare System Going

All taxpayers are subject to paying a tax known as FICA, which goes directly into a trust fund, known as the Hospital Insurance Trust Fund, that keeps the Medicare system running. The Hospital Insurance Trust Fund is one of two trust funds that the Centers for Medicare and Medicaid Services (CMS) oversees, and its funds pay for Medicare Part A:

  • Hospital insurance benefits
  • Home health care
  • Skilled nursing facility care
  • Hospice care

The second trust fund is known as the Supplementary Medicare Insurance Trust Fund, or SMI. This fund pays for Medicare Part B medical coverage and Part D prescription drug coverage. It’s important to note that the SMI fund is not supported by taxpayer dollars. It is instead funded by the premiums that beneficiaries pay for Parts B and D.

Though you’re required to pay in to help keep the system going, you become eligible to deduct your premiums once you become a beneficiary. In essence, it’s almost like getting back what you pay out in more ways than one. Let’s take a look at how and why you’re able to deduct premium expenses from your taxes as a Medicare beneficiary.

Medicare Premiums are Medical Expenses, and Medical Expenses are Deductible (to a Degree)

There are several things you can itemize as deductions at tax time to help you keep your bill low. Medical expenses are a part of that list. As your Medicare premiums are technically a medical expense, they can be deducted as such as long as you are a Medicare beneficiary.

Are All Medicare Premiums Tax Deductible?

So, now that you know that Medicare premiums are tax deductible, you likely have more questions about the process. Many of those questions likely relate to whether or not you can deduct the premiums that you pay on certain parts of Medicare.

A quick internet search related to Medicare and taxes will likely reveal the following questions or any similar variation:

  • “Are Medicare Part B premiums tax deductible?”
  • “Are Medicare Part D premiums tax deductible?”
  • “Can I count Medicare Advantage and Medigap premiums as tax deductions?”
  • “Are Medicare Part A premiums tax deductible?”

The short answer is yes, all Medicare premiums are essentially tax deductible. However, like all other medical expenses, the IRS only allows you to deduct Medicare premium expenses under certain circumstances. As you would likely expect, those circumstances relate to:

  • Age
  • Income
  • Whether or not you enrolled in certain parts voluntarily.

For instance, you can only deduct your Medicare Part A premiums if you enrolled voluntarily and you aren’t covered under Social Security. If you meet this criteria, you must also meet another important requirement before you’re able to deduct your premium costs from your taxes: your premiums must cost more than a certain percentage of your adjusted gross income (AGI). Depending on your age, your Medicare premiums must cost more than either 7.5% or 10% of your AGI before you can itemize them as tax deductions.

You’re also limited in exactly how much you can list in itemized deductions, such as Medicare premiums. The standard amounts to consider for the year 2022 (filing in early 2023) are as follows:

  • $12,950 for single filers
  • $25,900 for married couples filing jointly
  • $19,400 for filers listing themselves as head of household

Medicare Premium Tax Deductions Work Best for You if You’re Self-Employed

While all taxpayers can certainly benefit from deducting Medicare premium expenses from their taxes, they work best for you if you’re self-employed. When you itemize Medicare premium deductions on your tax return as a self-employed individual, it’s as if you’re able to offset the 2.9% you pay in Medicare taxes each period.

Medicare premium deductions for self-employed individuals are considered “above-the-line” deductions. These are listed on Schedule 1 of your 1040, and work as the best way to reduce your tax burden. For instance, if you establish yourself as an S corporation as opposed to a sole proprietor or an LLC, your corporation can reimburse you for any premiums you paid for Medicare during the year. In order to make this work, you must include the amount with the gross wages reported on your W2, and then deduct them on Schedule 1 of your 1040.

Being self-employed does not automatically mean that you can deduct your Medicare premiums to lighten your tax burden, however. In order to be able to deduct your Medicare premiums, your business or proprietorship must be making an actual profit. In other words, if you have no income from your business, then it makes no sense to deduct your premiums as there is no tax burden to reduce.

Always Be Cautious when Choosing to Itemize Medicare Premiums as Tax Deductions

It’s normal to want to offset some of the costs you pay for Medicare and taxes each year. If it’s feasible for you, itemizing Medicare premiums as tax deductions can be a great way to do so. However, it’s best to be cautious when deciding whether or not to do so.

Trying to itemize your Medicare premiums as tax deductions when you are technically not eligible to do so will likely lead to heavy penalties. On the other hand, if you’re eligible and choose not to itemize your premiums, you could be missing out on a lighter tax bill, or even a refund!

When making the decision to itemize Medicare premiums as tax deductions, always speak with a qualified tax professional before doing so. Consulting with a qualified tax professional can save you plenty of money and headaches in the long run.

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