I’m glad you asked this question because it gives me the opportunity to tell you that there is a very good chance that you can deduct those premiums that you paid. As always, there are different conditions that must be met, but the good news is that there are three different avenues in the tax code that allow you to deduct the cost of your Medicare premiums.
Let us review these three possibilities in turn.
Medicare as an Itemized Deduction
The amounts you paid for Medicare premiums are regarded as medical expenses and may be claimed on Form 1040, Individual Income Tax Return on Schedule A, Itemized Deductions under the heading of “Unreimbursed Medical Expenses.” Under this heading, you can claim the premiums you paid for Medicare Parts A, B, and D, as well as those for Medicare Advantage and Medicare supplement insurance (also known as Medigap). But this only applies if you are eligible to file Schedule A with your individual tax return.
To briefly review the general rules involved, when you file your Form 1040, you have a choice of claiming either the standard deduction or your allowable itemized deductions.
The amount of your standard deduction you can claim is based on your filing status. For 2022, the standard deduction rates for the most common filing statuses are:
- Married Filing Jointly or Qualifying Widow(er): $25,900
- Head of Household: $19,400
- Single or Married Filing Separate: $12,950
The standard deduction is available to all taxpayers, but taxpayers who had higher expenses during the tax year may instead qualify to deduct these expenses by using Schedule A to list their actual expenses item by item. Currently, taxpayers who itemize may claim up to $10,000 of state and local income, real estate, and property taxes they paid for the year. Also allowed are mortgage interest paid on their primary residence and one other property, up to specific limitations, charitable contributions made, and all medical expenses (including Medicare premiums) paid that were greater than 7.5% of their adjusted gross income (AGI) found on line 11 of the 2022 Form 1040.
Example: Lydia is trying to figure out whether she can itemize her deductions for 2022. If her AGI on line 11 is $50,000, she can only include the portion of her medical expenses that exceed $3,750 (7.5% x $50,000) in her calculations.
Medicare as a Business Deduction
The second method that allows taxpayers to deduct premiums for Medicare or other eligible health insurance from their income applies to individuals who are self-employed. An immediate advantage of this method of deduction is that you don’t have to itemize your deductions, and you are not subject to a 7.5% of AGI threshold. Instead, you deduct the full amount of the Medicare premium expenses from your income on the form called Schedule 1,
Additional Income and Adjustments to Income, that you would file together with Form 1040.
This deduction is only available if you are self-employed and neither you nor your spouse was eligible to participate in an employer-subsidized health plan. Another limitation to this deduction is that you cannot claim it if your business makes a loss for the year. Example: Mark is retired, but he runs a small consulting business that keeps him active. Last year, his business made a profit of $3,000, and he paid a total of $3,600 in Medicare premiums. He can only deduct $3,000 of his Medicare premiums for the year. If his business had made a $3,600 profit or more, he would have been able to deduct the full amount of his Medicare premiums.
Medicare Premiums Paid by HSA
The third avenue of tax relief for Medicare premiums applies to those taxpayers who saved money in a health savings account (HSA) before they enrolled in Medicare. Although you are not allowed to make further contributions to your HSA after you enrolled in Medicare, you may still withdraw funds from your account to pay eligible medical expenses.
If you are 65 or older, you can withdraw funds tax-free from your HSA to pay your Medicare premiums (with the exception of Medigap).
Summary
Depending on your situation, there may be up to three different options for you to find tax relief related from your Medicare premiums. You are not permitted to claim the same deduction twice, and anyone who finds themselves eligible to use more than one of these options is well advised to weigh the consequences of their choices and select the one path that is the most advantageous to them.
For example, a 65-year-old self-employed individual with an HSA who lives in a state with high taxes, and has a significant mortgage on her home, may conceivably be able to take advantage of any one of the three methods we have described to offset the financial burden of her Medicare health insurance. She must, of course, choose the best single alternative for her case, as tempting as it may be to triple-dip!