Millions of Americans enroll in Medicare each year, but only a small number truly grasp its implications on their taxes. So, are Medicare premiums tax deductible? Simply put, yes, you can make your Medicare premiums tax deductible!
Let’s dive a little deeper. First, there are two ways to deduct your Medicare premiums: by itemizing your deductions or taking the standard deduction.
Itemizing Deductions or Taking the Standard Deduction
If you want to deduct a portion of your healthcare expenses, keep your receipts and maintain detailed records. Instead of opting for the standard deduction, you must itemize your deductions to take advantage of this benefit.
To make it worthwhile, your total itemized deductions should include various expenses like charitable gifts, eligible medical costs, up to $10,000 in local and state income, property or sales taxes, and tax-deductible mortgage interest. The total sum of your itemized deductions should surpass the easier-to-claim standard deduction. Below are the standard deductions for seniors in 2023.
|2023 Standard Deduction|
|Single person over 65||$15,700|
|Married couple both over 65||$30,700*|
*Note: if you are over 65, but your spouse is not, your standard deduction will be less.
For many Americans with fewer deductions, it makes more sense to take the standard deduction. You need to speak to your accountant or tax professional about your unique situation to determine what makes the most sense.
What are the Rules for Itemizing Your Deductions?
To deduct your Medicare premiums as a medical expense, you must meet two requirements:
- You must itemize your deductions on your tax return.
- Your total medical costs must exceed 7.5 percent of your adjusted gross income (AGI).
The average income for seniors in the United States is roughly $45,000, and the average medical costs are $5,700.
The deduction threshold is 7.5% or $3,375. You can deduct any medical expenses above that threshold. Therefore, you could deduct $2,325.
Can I deduct my Medicare Premiums when Doing my Taxes?
There are many expenses that you can deduct above the 7.5% threshold. If you are itemizing your deductions, you can deduct:
- Medicare Part A premiums (if you pay them),
- Medicare Part B premiums, even if you pay a high-income surcharge (or Income-Related Monthly Adjustment Amount),
- Medicare Part D premiums, including the high-income surcharge,
- Medicare Advantage premiums,
- Medigap premiums, and
- A portion of your long-term care insurance ($4,770 up to age 70 and $5,960 over age 70)
What out-of-pocket Healthcare Expenses are Deductible?
- Deductibles and copayments.
- Most vision expenses (contact lenses, eyeglasses, routine eye exams, eye surgery) Most dental expenses (dental procedures, dentures, regular dental exams)
- Most hearing expenses (hearing aids and hearing exams)
- Medical equipment (crutches, wheelchairs, medical supplies)
- Specific home improvements made to make your living space more accommodating and accessible (bathroom grab bars, handrails, ramps, etc.)
- Certain mental health care costs
- Travel expenses to receive medical care
Medical expenses that are not eligible include late enrollment premiums and cosmetic surgery. The IRS provides more information here on qualified medical costs.
What if I am Self-Employed?
Self-employed individuals may be able to deduct Medicare premiums from their federal taxes. The IRS offers an “above the line” deduction for health insurance premiums, meaning that it is a deduction made from your gross income and will lower your Adjusted Gross Income (AGI).
It’s essential to note that this tax benefit is specifically for self-employed individuals, such as:
- sole proprietors,
- limited liability company members, and
- certain S corporation shareholders.
However, to qualify for the deduction, self-employed individuals must report a profit, as the deduction cannot exceed their business earnings.
Tax Benefits of Your Health Savings Account (HSA)
Using your health savings account (HSA) can be a savvy strategy to lower your tax bill while managing your healthcare expenses. HSAs offer a unique triple tax advantage, making them an attractive option for those eligible.
First, your contributions to the HSA are tax-deductible, reducing your taxable income for the year. Secondly, any interest or investment gains within the HSA grow tax-free. Finally, when you use the funds for qualified medical expenses, you can withdraw them tax-free. By contributing to your HSA, you can effectively shield part of your income and keep more of your hard-earned money in your pocket.
Making the Most of Your Medicare Benefits with The Medicare Family
Of course, your tax professional will be able to help you determine how to handle your medical expenses come tax time. But how do you choose which Medicare plan is right for you? Is Original Medicare enough? How can you avoid paying penalties when you enroll?
To navigate the complex world of Medicare, look to the experts. At The Medicare Family, we are a family company that has been guiding seniors for over 40 years, and we are dedicated to helping you find the right Medicare plan that suits your unique needs. Whether you’re new to Medicare or looking to switch plans, our experienced team is here to provide personalized assistance and answer all your questions.
So why wait? Schedule an appointment with The Medicare Family today and discover the peace of mind that comes with having experts on your side. Let us help you make informed decisions, avoid penalties during enrollment, and unlock the full potential of your Medicare benefits.