When filing your tax return, you need to know exactly what you’re doing. One little mistake, and you could be in receipt of a hefty fine, or even be sent to jail.
That’s why it pays to read articles like this one that spell out what things are tax-deductible and what things aren’t.
It can be quite the minefield if you don’t know what’s what, and the potential penalties are just plain awful.
And with Medicare being a federal program, it stands to reason that you might expect Medicare to be paid for via income tax.
But is that actually the case? Do you need to deduct Medicare premiums as income tax?
That’s exactly the question that this article is here to answer, and we’ll cover everything else you need to know along the way, answering all of your most frequently asked questions on the subject.
By the end of the article, you will know what’s what, and what you need to do. P
lease feel free to scroll ahead to any section that jumps out at you. Here goes.
Understanding Medicare And Its 4 Parts
Medicare premiums help to fund the Medicare program, so that when an individual needs medical attention, the funds are there to help.
Medicare is split into 4 separate parts as follows:
- Part A covers the cost of hospitalization and surgeries
- Part B covers doctor visits, medical tests and outpatient treatment
- Part C covers Medicare Advantage, which is for older people and disabled adults
- Part D covers the cost of prescription drugs
There is also a supplemental health insurance, called Medigap, to cover out-of-pocket expenses.
Medicare is not mandatory for everybody. However, that said, enrolling in Part A is mandatory for those in receipt of Social Security benefits.
Parts B and D are optional, and you can opt out of Part C if you wish when you turn 65. But it’s widely considered that all parts of Medicare are good value for money.
To learn more about the costs of each part of Medicare, check out this link, which takes you directly to the federal government’s Medicare website.
How Are Medicare Premium Payments Made?
If you are employed, your employer will typically have a health care plan in place for you, and this may include one or more parts of Medicare. If this is the case for your employer, your Medicare premiums can come directly out of your paycheck.
If, however, you are self-employed, you are required to pay a self-employment tax of 15.3% of your annual income. And a fraction of this, specifically 2.9% goes towards Medicare.
Individuals who are out of work and are on social security benefits automatically get Medicare.
Are Medicare Premiums Tax Deductible?
Like many other health insurance premiums, Medicare is tax-deductible. And it is not considered to be pretax.
What this means is that, if your Medicare premiums cost say $70 per month, and your total pay before taxes is $1,070, then your net take home pay would be $1000.
But even though your Medicare premiums can come straight out of your paycheck, they will not be taken out pretax, and when you file your tax return, you will need to deduct them from your adjusted gross income (Or AGI).
Which Parts Of Medicare Premiums Are Tax Deductible?
We are pleased to report that Medicare premiums are typically tax-deductible across the board, provided that certain criteria are met.
The rules on deducting Medicare premiums from your adjusted gross income on your tax return depend on your specific circumstances, most notably your employment status and your total income.
Here follows a quick rundown.
- Part A – Most people get this part without having to pay any premiums, therefore there’s nothing to deduct. However, if you are paying a Part A premium and are not getting any social security benefits, then you can deduct the premium from your taxable income.
- Parts B, C, and D – These parts are all tax-deductible, provided that you meet certain criteria with regard to income rules.
What’s more, Medigap is also tax-deductible.
Is There A Limit For Deducting Medicare Premiums?
Unfortunately, there is a limit in place when it comes to deducting medical expenses in your tax return. Generally speaking, the IRS will allow you to deduct any medical expenses that exceed 7.5% of your AGI.
To give you an example, if your adjusted gross income comes to $20,000 for the tax year, then this means that you can deduct any medical expense that comes to over 7.5% of this total, which works out as $1,500.
In other words, in this scenario, any medical expenses must come out of your own pocket unless they cost $1,500 or more.
How Do You Deduct Medicare Premiums?
Fortunately, deducting your Medicare premiums on your tax return is relatively straightforward.
However, it does require you to keep hold of all your medical receipts, insurance statements, your SSA-1099 form and any summary notices that you may have accrued.
Here’s what you need to do:
- Note your adjusted gross income for the tax year
- Add up all the money you spent on healthcare that year
- Fill in IRS form 1040 or 1040-SR
- On lines 1 through 4 enter your medical expenses. The form will then walk you through calculating 7.5% of your AGI
- If your medical expenses meet or exceed this 7.5% then you can go ahead and deduct your medical expenses from your adjusted gross income
So, to summarize, Medicare premiums can be tax-deductible. What’s more, all 4 parts of Medicare can be tax-deductible, as can Medigap supplemental health insurance.
However, it’s important to reiterate here that Medicare premiums are only tax-deductible in certain circumstances, and you will need to meet certain criteria in terms of employment status and income.
Furthermore, your medical expenses would have had to come to more than 7.5% of your adjusted gross income in order for you to deduct it from your income tax bill.