For some enrollees, Medicare premiums may be tax deductible, regardless of whether you have Medicare Part A and B (Original Medicare) along with Part D (prescription drug coverage), or Medicare Part C (Medicare Advantage).
For most seniors, the cost of medical care is usually their biggest out-of-pocket expense each year. These costs will typically include that for insurance and Medicare premiums, along with the cost of prescription medications, and possibly the need for long-term care services.
Those who are enrolled in Medicare are allowed to count a portion of the premiums paid in as a medical expense on their annual tax return. This includes the premiums for Medicare Part B (Medical Insurance), Part C (Medicare Advantage), and / or Part D (prescription drug coverage).
In 2015, the cost of the Medicare Part B monthly premium for most enrollees is $104.90. However, for those who are considered higher income earners, the amount of this premium could be more. The premium that is charged for Medicare Advantage plans, as well as for Medicare Part D prescription drug coverage, will vary from plan to plan, as these plans are sold by private insurance carriers and not directly through Medicare.
Individuals are also allowed to count the premium paid for a Medicare Supplement insurance policy – often referred to as Medigap insurance – as a medical expense on their taxes. These plans are also sold by private insurers, and therefore the amount of the premium may vary.
How Much Premium Can Be Deducted
While the premium paid for Medicare and Medicare Supplement coverage may be counted as a medical expense on one’s tax return, it is important to note that the entire amount of the premium is not deductible. In the past, taxpayers have only been allowed to deduct medical expenses that exceeded 7.5 percent of annual AGI (adjusted gross income).
Starting in 2013, the rules for deducting medical and dental expenses changed. For those taxpayers who were under the age of 65, the 7.5 percent threshold was increased to 10 percent.
This means that only medical and dental expenses that exceeded 10 percent of the taxpayer’s AGI would be deductible. It also meant that taxpayers were no longer allowed to deduct as much of their medical expenses as they were able to deduct in past years.
In creating these new rules, however, those who are age 65 and over are exempted from the 10 percent threshold increase until the 2017 tax year. This means that anyone who is age 65 or over is still allowed to use the 7.5 percent threshold in taking a tax deduction for medical and dental expenses for any tax year prior to January 1, 2017 – as long as the taxpayer or his or her spouse was age 65 during or prior to the tax year.
It is important to note that a taxpayer is only allowed to claim an itemized medical expense deduction to the extent that their total expenses exceed 7.5 percent of their adjusted gross income for the tax year. For additional information, it is recommended to consult with your tax professional.