Most medical expenses are tax-deductible, but relatively few people's itemized expenses exceed the standard deduction.
The answer to this question depends on many factors. Unfortunately, there’s no simple one-size-fits-all answer. The good news is that there are many ways to deduct Medicare premiums from your taxes, and some people will be able to do this if they want to.
There are different rules depending on whether you’re self-employed, how much you make, and how much you’ve spent out-of-pocket on health care that year. We’ll run through all of the details, so you can be sure you understand how to file your taxes this year.
How deducting Medicare premiums works
The full story of how to deduct your Medicare premiums from your taxes will be described step by step below. However, here we’ll go over a quick summary of how this works.
If you spent more than 7.5% of your Adjusted Gross Income (AGI) on health care costs in a given year, you can choose to deduct this amount from your taxes. This is only true if you itemize your deductions. You are only able to deduct what you actually spend out-of-pocket, not the full amount that was paid between you and Medicare.
If you are self-employed, you can use your Medicare premiums as an above-the-line deduction, meaning that your premiums and other costs will lower your AGI. We’ll go over this in more detail below.
What exactly can I deduct?
If you are able to take these deductions, you can usually deduct any Medical fees. This includes premiums for Medicare Part B and Part A, along with coinsurance, copayments and deductibles for every part of Medicare. You will also often be able to deduct and associated fees for Part C and Medicare Part D premiums. As described in detail later, you can usually also deduct other health insurance premiums, supplemental insurance premiums, and other health care expenses that you may have. If you pay additional premiums to another insurance company, they may qualify as well.
If you have Original Medicare (Medicare Parts A and B), you most likely have premium-free Part A. Unless you have a Medicare Supplement Plan, you're probably only paying premiums for Part B.
So, what is the AGI?
Adjusted Gross Income, or AGI, is an important figure that’s used to calculate how much taxes you owe. Essentially, this amount is your gross income (how much you earned in that year total, from working, dividends, etc.) minus a variety of adjustments. If it sounds vague to just say “a variety of adjustments”, that’s because it is.
There are a wide variety of categories that are subtracted to get your AGI, including retirement plan contributions, jury duty pay, some business-related expenses, and alimony. Most people won’t be able to easily calculate their AGI using pen and paper methods. Instead, try to find an online calculator that’s able to do this for you. Most tax preparation programs will automatically calculate your AGI for you.
How can I know if I can deduct my Medicare premiums?
There is a simple way to know if you are eligible to take this deduction. If your medical expenses exceed 7.5% of your AGI, you will be able to deduct them. If they are under 7.5%, you will not be able to.
Note that this involves all medical expenses, not just Medicare. If your Medicare premiums don’t reach 7.5%, but you add other non-Medicare fees, like prescription drugs and vision care, and then reach the 7.5% limit, you will still be able to take this deduction.
Should I deduct my medical costs if I am able to?
This is a difficult decision to make. If you choose to deduct your medical costs, including your Medicare premiums, you won’t be able to take the standard deduction. If you itemize your deductions, you may be able to deduct more than just your medical costs. Itemized deductions are handled on Schedule A, which is a form you'll file with form 1040 when you get ready for your tax return.
If you deduct your monthly premiums, you want to make sure that your total itemized deductions are higher than the standard deduction. The standard deduction is a standard amount that you can choose to deduct, regardless of what your actual expenses are.
For tax year 2023, the individual standard deduction is $13,850. Those married and filing jointly have a deduction of $27,700, and heads of households have a deduction of $20,800. Depending on your filing status, you should choose to itemize your deduction if your total itemized deductions are higher than the standard deduction available to you.
Because this can get a bit complex, let’s take a look at a thorough example of a situation in which someone should not choose to itemize their deductions and therefore deduct their Medicare premiums, as well as an example of when they should.
When to Not Deduct
John is filing his taxes as an individual.
In 2022, he earned $60,000. Due to IRA contributions, his AGI is $55,000.
John’s Medicare Part B premiums came out to $1,735.20, and he spent an additional $4,000 on various other medical expenses, such as dental work and additional medical insurance. So, his total spent on medical expenses is $5,735.20. Let’s assume that John has no other expenses that he can itemize.
In this case, 7.5% of John’s AGI comes out to $4,125. This means that John spent enough on his medical expenses in 2022 to list them as an itemized deduction. However, in this situation, this isn’t a good idea. The reason for this is that John can take the standard deduction, which is a higher amount. This means that he will pay fewer taxes if he takes the standard deduction, rather than itemizing the deduction. However, he does have the option in this case.
When deducting is a good idea
Let’s consider another situation. In this situation, John spent the exact same as in the one described above on his Medicare plans and other medical expenses. However, he also made a $10,000 tax-deductible charitable donation.
In this situation, his total itemized tax-deductible expenses amount to $10,000+$5,735.20= $15,735.20. This is higher than the standard deduction of $13,850. That means that in this case, John will be better off if he itemizes his deductions because this will end up saving him more.
What if I’m self-employed
If you are self-employed, the rules for deducting your Medicare premiums are a bit different. In this case, the IRS allows you to take these costs as tax deductions, but in a different way. You will be able to deduct all Medicare premiums from your federal taxes, for you and/or your spouse, along with Medigap plan premiums, premiums from Medicare Advantage plans, and Part D prescription drug plan premiums.
These costs will be taken as above-the-line deductions, which means they will lower your AGI. You’ll be able to take these deductions if you are a sole proprietor, partner, limited liability company member, or S corporation member. In any of these cases, you can choose to take these deductions in this way.
Can I take the deduction twice?
No, you cannot. This seems like an option if you are traditionally employed and self-employed. If you have two streams of income in this way, you’ll have to choose how you want to deduct your Medicare premiums. If your situation allows you to make these deductions from your AGI due to your self-employment income or to take it instead of the standard deduction, you’ll have to figure out which way ends up saving you more money. There is no way to tell this in advance, and every situation will be different, so make sure to do the math or take to a tax preparer before you settle on a choice.
Key things to remember
If you pay Medicare premiums, talk to a tax accountant to see if you qualify for these deductions. If so, this can end up saving you a lot of money. Most people don’t end up deducting their premiums, even if they’re eligible, because the process and facts are not well known.
If you’re using a tax preparer or tax preparation software, don’t assume that this will be automatic. If you want to deduct these costs from your taxes, you’ll have to specifically bring it up. However, it can be worth it. The important thing is to make sure you understand the facts or have an advisor that does, so you can take the maximum deductions you are able to.