Americans age 65 and older qualify for basic Medicare insurance, but they may need to pay additional premiums to get the level of coverage they prefer. Those premiums can be expensive, but there is at least one aspect of paying premiums that can be positive: If you qualify for Medicare premium tax deductions, you can lower your tax bill.
Medicare premium tax deductions
Premiums for Medicare health insurance can be combined with other qualifying healthcare expenses for purposes of claiming an itemized deduction for medical expenses on your individual tax return. This includes amounts for Medigap insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their healthcare expenses. Coverage gaps include co-payments, co-insurance, deductibles, and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.
Fewer people now itemize
Qualifying for a medical expense deduction can be difficult for a couple of reasons. For 2019, you can deduct medical expenses only if you itemize deductions and only to the extent that total qualifying expenses exceeded 10% of AGI. This threshold was 7.5% for the 2018 tax year.
The Tax Cuts and Jobs Act nearly doubled the standard deduction amounts for 2018 through 2025. For 2019, the standard deduction amounts are $12,200 for single filers, $24,400 for married joint-filing couples, and $18,350 for heads of households. That means fewer individuals are claiming itemized deductions.
However, if you have significant medical expenses (including Medicare health insurance premiums), you may itemize and collect some tax savings.
An important point to remember: Self-employed people and shareholder-employees of S corporations can generally claim an above-the-line deduction for their health insurance premiums, including Medicare premiums. That means they don’t need to itemize to get the tax savings from their premiums.
Other deductible medical expenses
In addition to Medicare premiums, you can deduct a variety of medical expenses, including those for ambulance services, dental treatment, dentures, eyeglasses and contacts, hospital services, lab tests, qualified long-term care services, prescription medicines, and others.
Keep in mind that many items that Medicare doesn’t cover can be written off for tax purposes if you qualify. You can also deduct transportation expenses to get to medical appointments. If you go by car, you can deduct a flat 20-cents-per-mile rate for 2019, or you can keep track of your actual out-of-pocket expenses for gas, oil, and repairs.
Need more information?
Contact us at KraftCPAs if you have additional questions about Medicare coverage options or claiming medical expense deductions on your personal tax return. Our advisors can help determine the optimal overall tax-planning strategy based on your personal circumstances.