Can you deduct medicare part b premiums from your taxes

Summary:

If you itemize deductions, you may be able to deduct healthcare costs such as Medicare premiums. If you’re on a fixed income, every dollar counts—including money spent on health care and Medicare premiums. According to a 2019 report by Fidelity, about 15% of a retiree’s annual expenses could go to healthcare-related expenses including Medicare premiums, deductibles, and copayments. If you’re on Medicare and looking for ways to minimize your tax burden, here’s what you need to know about Medicare premiums and income tax.

What Medicare premiums do I have to pay?

There are four parts to the Medicare program:

• Part A, which is your inpatient hospital, hospice, and skilled nursing facility insurance
• Part B, which covers doctor visits, diagnostic tests, durable medical equipment, and most outpatient services
• Part C, which is the Medicare Advantage program (you choose between the Original Medicare or Medicare Advantage track)
• Part D, which is Medicare’s prescription drug program

If you sign up for Original Medicare and want protection against out-of-pocket costs, you may also have Medicare premiums for a Medicare Supplement insurance plan.

Medicare premiums for Part A are based on your work history; most people qualify for premium-free Part A. Everyone generally pays the base Part B premium, even if you enroll in a Medicare Advantage plan, although some low-income individuals qualify for additional help with Medicare premiums for Part B. Those with higher incomes may pay a high-income adjustment along with the standard Part B Medicare premiums.

If you enroll in Part C, or Medicare Advantage, plan, you pay your Part B Medicare premium plus any additional premium charged by your plan. (Some Medicare Advantage plans have premiums as low as $0.)

Medicare Part D Prescription Drug Plans are technically optional; if you choose to enroll in one, you’ll typically pay your insurer a separate premium. However, if you get your Part D prescription drug coverage through your Medicare Advantage plan, you only pay your insurance company one premium for both your Medicare benefits and your prescription drug plan. Some people with higher incomes may also pay a premium adjustment to Medicare for their Part D prescription drug coverage.

Are my Medicare premiums and out-of-pocket costs tax-deductible?

Under the U.S. tax code, you may be able to deduct health care expenses beyond a certain percentage of your income if you itemize deductions. According to the Internal Revenue Service in 2022, “you may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income.”

The tax code states the following expenses may count toward the itemized healthcare deduction:

• Health insurance premiums, such as Medicare premiums, paid with after-tax income
• Premiums for a qualified long-term care insurance

You may also itemize:

• hospital, hospice, or skilled nursing care
• outpatient services including doctor visits, ambulance rides, and diagnostic tests
• prescription medications
• dental and vision care
• preventive care
• home modifications necessary to keep you safe

Keep in mind that only the expenses you pay out-of-pocket count toward the itemized deductions. In other words, if you have a $20,000 hospital bill, and Medicare pays all but $1,500 of it, only the $1,500 you pay for your care can be itemized on your return, not the entire $20,000 bill.

The information in this article isn’t a substitute for advice from a tax professional, so be sure to talk to your tax preparer about your health care deductions. It’s always a good idea to keep receipts for all health care expenses, including Medicare premiums, copayments, and coinsurance amounts to help you and your tax professional when it’s time to file your taxes.

Yes, your Medicare premiums can be deductible if you itemize on your federal income tax return and qualify to deduct your medical expenses.

To write off a portion of your health care costs, you must keep your receipts and other records rather than take the standard deduction. To make this worthwhile, your total itemized deductions — including but not limited to charitable gifts, eligible medical expenses, local and state income or sales taxes, and tax-deductible mortgage interest — must be more than the easier-to-claim standard deduction.

Expenses and deductions for 2022 can be taken on the return you’ll file in 2023. Tax day is April 18, 2023. You’ll take your 2023 expenses off the return you file in 2024.

What’s your standard deduction?

The Tax Cuts and Jobs Act of 2017 bumped the standard deduction beyond $10,000 for all filers, and the amounts rise annually based on inflation.

Note: If one spouse is younger than 65, the standard deduction will be less.

Source: IRS

Like almost anything related to taxes, calculating how much of your medical expenses are deductible is tricky. You can deduct only the portion of your qualifying medical expenses that are more than 7.5 percent of your adjusted gross income (AGI). (AARP successfully fought to keep the deduction threshold from rising to 10 percent.)

If your AGI is $50,000, you can deduct medical expenses in excess of $3,750. If you had $5,000 in eligible medical expenses, you could deduct $1,250 on your income tax return.

If you have self-employment income, you may be able to deduct your Medicare premiums from your income without having to itemize.

What Medicare expenses are tax deductible?

If you qualify, you can deduct Medicare and other related insurance premiums when you itemize, including these:

• Medicare Part A, although most people don’t have to pay Part A premiums.

• Medicare Part B, which is $170.10 a month for most people in 2022 ($164.90 in 2023). The premiums can still be tax deductible even if they’re deducted automatically from your Social Security benefits. If you have to pay a  high-income surcharge for Part B premiums — also called the Income-Related Monthly Adjustment Amount (IRMAA) — your full premiums can still be tax deductible.

• Medicare Part D prescription plans, including the high-income surcharge.

• Medicare Advantage, the private alternative to original Medicare.

• Medicare supplement insurance, the private plans also known as Medigap.

• Long-term care insurance. You can deduct a portion of eligible plan premiums based on your age: $450 in 2022 if you’re 40 or younger; $850 if you’re 41 to 50; $1,690 if you’re 51 to 60; $4,5 10 if you’re 61 to 70; and $5,640 if you’re 71 or older. These limits are per person; married couples filing a joint tax return can each deduct their long-term care premiums up to the limits for their age.

In addition, other out-of-pocket medical expenses are eligible, with a caveat. Other insurance, such as a Medicare Advantage plan, Medigap or retiree health insurance, can’t also have reimbursed you for:

• Deductibles and copayments.

• Most dental, hearing and vision expenses, such as contact lenses, eyeglasses, routine eye exams, dental procedures, dentures, routine dental exams, hearing aids and hearing exams. You can also include the cost of eye surgery to treat defective vision, such as laser eye surgery or refractive surgery to correct myopia or nearsightedness.

• Medical equipment, including crutches or a wheelchair, that may not be covered in full. Medical supplies such as bandages are also tax deductible.

• Certain home improvements to accommodate a disability. For example, you can deduct the cost of constructing wheelchair ramps, installing bathroom grab bars and handrails, and widening doorways and hallways. If the improvement increases the value of the home, a portion of the expense will not be tax deductible.

• Certain psychologist or psychiatrist care costs, even if they exceed Medicare’s coverage limits for mental health benefits.

• Services Medicare doesn’t cover, such as acupuncture or chiropractor visits beyond the limited definition of Medicare coverage.

• Many travel expenses to receive medical care. But lodging costs may have a daily maximum.

See IRS Publication 502, Medical and Dental Expenses, for a full list of eligible expenses and rules.

What Medicare expenses are not tax deductible?

You can’t deduct the following Medicare-related expenses.

• Cosmetic surgery to improve your appearance and not to address problems resulting from an accident, deformity or disease. Face-lifts, hair removal, hair transplants, liposuction and teeth whitening are generally not tax deductible.

• Late-enrollment penalties added to Part B or Part D premiums.

• Nonprescription medications, except for insulin. That includes herbal, nutritional or vitamin supplements, unless a medical provider recommends them as treatment for a specific medical condition a physician has diagnosed.

Can I use my health savings account to pay premiums?

For the most part, yes. If you saved money in a health savings account (HSA) before you enrolled in Medicare, you may be able to get an even bigger tax benefit by withdrawing its tax-free money to pay for Medicare premiums and other medical expenses.

You don’t have to itemize to take the withdrawals as eligible expenses. But you can’t double-dip and take both tax-free HSA withdrawals and a tax deduction for the same medical expenses.

While you can’t make new contributions to an HSA after you enroll in Medicare, you can withdraw the money without penalty for eligible medical expenses at any age. This includes your costs for insurance deductibles and copayments, most medical expenses that qualify for a tax deduction, and a few additional expenses, such as over-the-counter medications.

If you’re 65 or older, you can withdraw money tax free from an HSA to pay premiums for Medicare Part A if you aren’t eligible for free Part A hospitalization, Part B doctor visits and other services, Part D prescription plans, and Medicare Advantage. However, the IRS doesn’t allow tax-free HSA withdrawals for Medigap premiums at any age.

Keep in mind

Even though Medicare premiums are tax deductible, premiums paid for employer health insurance usually are not. If you’re still working and have health insurance there, you generally pay those premiums with pre-tax money.

In that case, you’re already getting a tax break for your health insurance premiums. So you can’t take a deduction for them too.

Published October 27, 2022

Are Medicare Part B premiums deductible on income tax?

Are Medicare premiums deducted from Social Security benefits taxable?

Can I deduct Medicare Part B premiums on Schedule C?