Are Medicare Premiums Tax Deductible in 2024?
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January 3, 2024
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Medicare premiums are tax deductible; however, they are not typically considered pretax, so they’re taken out of your paycheck based on the amount you make before the money is taxed.
For example, let’s say your employer-sponsored health insurance costs $250 each month, and you earn $4,500 each month; that $250 would be pulled for your insurance payment, and you’d pay taxes only on the remaining $4,250.
Medicare doesn’t work the same way as company insurance. Premiums aren’t removed from your income source before taxes, even if you choose to pay your premium by having the government remove it from your Social Security check. As such, you’ll want to deduct them when you file your annual taxes.
Did You Know: The Consolidated Appropriations Act of 2021, also known as the CARES Act, permanently lowered the eligibility for taking medical deductions from unreimbursed medical expenses to 7.5 percent.
Medicare Premiums Deduction Eligibility
Whether or not you can deduct your Medicare premiums — and which ones you can deduct — depend on a couple of factors: your income and employment status.
Part A Premiums
Those who pay Part A premiums and don’t receive Social Security benefits can deduct their Part A premiums. With that said, most people don’t pay a Part A premium because, generally speaking, they paid Medicare taxes while working, so there’s usually nothing to deduct.
If you don’t receive premium-free Part A, you might pay up to $471 each month, which is the standard deduction for anyone who paid Medicare taxes for less than 30 quarters. If you paid Medicare taxes for 30-39 quarters, the standard Part A premium is $259.
Part B Premiums
The IRS lets you deduct medical costs that exceed 7.5 percent of your adjusted gross income (AGI), which is your yearly income after taxes. The standard monthly premium for 2023 is $164.90.
Medicare Advantage Premiums
Premiums with Medicare Part C, also known as Medicare Advantage, follow the same rules as Part B. If your medical expenses for the year total more than 7.5 percent of your AGI, you can deduct them.
FYI: Curious about the ins and outs of Medicare Part C? Then read my guide, Medicare Advantage vs. Medigap, to learn more about these types of coverages.
Part D Premiums
As with Parts B and C, you can deduct your Part D prescription coverage premiums if your annual medical costs surpass 7.5 percent of your AGI.
Medigap Premiums
Premiums for Medigap may also be tax deductible. Medigap premium costs depend on your state, provider, and the plan you select. Plan G (the most comprehensive plan available to seniors eligible for Medicare before and after 2020) has a national average premium of about $145 per month. High-deductible plans can have much lower premiums. For example, the average premium for a high-deductible version of Plan G is $65 per month.
Pro Tip: To learn more about Medicare supplemental insurance, read my guide, What Is Medigap?
Preparing To Deduct Medicare Premiums
You’ll want to keep copies of the following each year in preparation for making your deductions:
- SSA-1099: You will receive an SSA-1099 form for each year you receive Social Security benefits. Along with the total of your Social Security benefits, the SSA-1090 lists any taxes withheld for the year. This includes your premiums for Part B, should you choose to pay by having your monthly payment deducted from your Social Security check.
- Medicare Summary Notification: This notification form typically comes from Medicare every three months and details all services you used, what Medicare paid, and payments you made. If you aren’t receiving these forms or prefer a digital version, set up or log in to your MyMedicare account. It will provide you with the same information.
- Bills or Receipts for Uncovered Medical Expenses: Per the IRS, you can include certain costs not covered by Part A or B (Original Medicare) when computing your medical expenses for the tax year. To do so, you must keep track of relevant bills and receipts, so you can add the correct information when tax filing season comes around. For example, you’d want to hang on to financial information regarding expenses such as prescriptions, hearing aids, and dental or vision care.
These documents will provide you with the information you need to calculate your total medical expenses and the amount you can deduct during tax season. Then, if you opt to do so, you can file an itemized Schedule A deduction.
Did You Know: Interested in Medicare coverage for hearing and dental care? Then check out my guides to Medicare coverage of hearing aids and Medicare coverage of dental.
Self-Employed Medicare Premium Deduction
Premium deduction for Medicare looks different for the self-employed, which the IRS defines as anyone who owns a business that earns income, including sole proprietors.
Since 2010, self-employed individuals have been allowed to deduct their healthcare premiums before taxes. This is called an “above-the-line” deduction and lowers your adjusted gross income (AGI). In addition, deducting Medicare premiums pretax is an option regardless of whether you itemize; you are also permitted to deduct your spouse’s Medicare premiums and qualifying dependents under 27.
Still, there are a few caveats to this deduction:
- You cannot deduct your Medicare premium pretax for any time you were eligible for an employee-sponsored healthcare program.
- You can only deduct as much as your business makes that tax year.
- If you own more than one business, you can only use one business to calculate your premium tax deduction. You are not allowed to combine the income from all your businesses.
To deduct your self-employment Medicare premiums pretax, use Schedule 1 on your 1040 form. For S corps, you could alternatively have your corporation directly pay your Medicare premiums and include them as a business expense, or you can have it reimburse you for the premiums.
Using HSA Funds for Medicare Premiums
Health savings account funds are taken out of your income before taxes. You can use them to pay Medicare premiums for Parts A, B, C, and D. This tax workaround allows you to use your before-tax income to pay for premiums for which you’d typically have to use after-tax funds. Please note that you cannot use an HSA to pay for Medigap premiums.
Unfortunately, you are not allowed to add money to an HSA once you join Medicare. But you’re certainly welcome to do so before joining.You can then continue to use the tax-free money already in the account to pay for qualified medical expenses, including your Medicare premiums.
How to Deduct Medicare Premiums From Your Taxes
Deducting Medicare premiums can save you a boatload on your taxes. Just how much? That will depend on your total healthcare expenses for the year, but it can certainly add up. Follow these simple steps to find out how much you can save:
- Calculate your AGI for the year. This is your gross income minus applicable deductions. Try using an online AGI calculator to make sure you’ve included everything and get accurate results.
- Collect and organize all your healthcare receipts, including your SSA-1099 and summary notices.
- Find the sum of your medical expenses for the year.
- Complete IRS Form 1040. First, list your healthcare expenditures on lines 1 through 4. Then use the instructions to compute 7.5 percent of your AGI. Finally, subtract that number from your cumulative medical expenses for the year.
- The resulting answer (your total medical expenses minus 7.5 percent of your AGI) is the amount you can deduct.
To illustrate, imagine your AGI is $60,000 and your total qualified medical (TMC) costs for the year total $10,000.
You’ll use this equation to determine what you can deduct:
TMC – (.075 x AGI) = Your Permitted Deduction
So, flash back to middle school math; you always start with parentheses. Thus, you find the answer to (.075 x AGI) first:
(.075 x $60,000) = $4,500
Next, you subtract the number from the parentheses (.075x AGI) from your total medical expenses, $10,000. So that’s:
$10,000 – ($4,500) = $5,500
The solution, $5,500, is the amount you can deduct for medical expenses: 7.5% of $60.000 is $4,500, and $10,000 minus $4,500 is $5,500.
Bottom Line
In short, there’s a variety of ways you can save money on the cost of your Medicare premiums, including the following scenarios:
- If you have healthcare expenses that exceed 7.5 percent of your AGI and choose to itemize.
- If you’re self-employed and choose to deduct your Medicare premiums pretax and lower your taxable income.
- If you planned for the long term and now pay your Medicare premiums with tax-free HSA funds that you set aside before enrolling in Medicare.
To learn more about Medicare and the ways to make the most of your coverage, check out the helpful guides:
Medicare Tax Deduction Frequently Asked Questions
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Do Medicare premiums reduce taxable income?
Your monthly Medicare premiums are tax deductible. When you add them as an itemized healthcare deduction, you reduce your taxable income.
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Are Medicare premiums tax deductible in 2023?
If you are itemizing your taxes because your annual medical costs exceeded 7.5% of your adjusted gross income, you can add your Medicare premiums as itemized, or below-the-line, deductions.
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Can you deduct Medicare premiums from Social Security?
If you are enrolled in both Social Security and Part B Medicare, the Social Security Administration automatically deducts your Medicare premium from monthly benefits.
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Are Medicare Part B premiums deductible?
Yes, you can deduct your Medicare Part B premiums. However, it typically requires you to itemize your deductions instead of opting for the standard deduction.
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What insurance premiums are tax deductible?
Premiums for health insurance purchased through Medicare, Marketplace or COBRA are all
tax deductible because they are all paid on an after-tax basis. On the other hand, premiums for employer-sponsored healthcare are already taken out pretax. Since you receive these tax savings in your paycheck, deducting premiums during the annual tax season is not allowed.