Can medicare premiums be deducted as se health insurance

Explaining a recent reversal of a long-held IRS stance, the Office of Chief Counsel advised IRS attorneys on Friday that self-employed individuals may deduct Medicare premiums from their self-employment income. Chief Counsel Advice (CCA) 201228037 clarifies an IRS position that previously has appeared only in instructions to Form 1040, U.S. Individual Income Tax Return, and IRS publications for tax years 2010 and forward allowing the deduction.

Table of Contents Show

Which Medicare Premiums are tax-deductible?
What other Medicare costs are tax-deductible?
Medicare costs that can be deducted:
What are the limits and requirements for deducting Medicare premiums and costs?
What are the limits for deducting Medicare premiums and costs?
How do you determine your AGI?
What if you’re employed?
What if you’re self-employed?
How do you deduct Medicare premiums and costs?

Taxpayers who failed to deduct Medicare premiums for prior tax years within the statute of limitation may file amended returns to claim the deduction.

Before tax year 2010, Form 1040 instructions for line 29 stated, “Medicare premiums cannot be used to figure the [self-employed health insurance] deduction.” Before 2010, Publication 535, Business Expenses, stated that Medicare Part B premiums were not deductible as a business expense, in keeping with Field Service Advisory (FSA) 3042, issued in 1995.

For the 2010 Form 1040, the instructions for line 29 were changed to specify, “Medicare Part B premiums can be used to figure the deduction.” The 2010 version of Publication 535 was similarly amended, but the IRS offered no guidance or explanation for the change.

Sec. 162(l)(2)(A) limits the deductible amount of payments made for health insurance to the taxpayer’s earnings from the trade or business “with respect to which the plan providing the medical care coverage is established.” FSA 3042 stated that this meant that payments under a plan that is not established with respect to the taxpayer’s trade or business (specifically including Medicare Part B, because it is a federal program) are not deductible.

The CCA, however, states that because Medicare is insurance that constitutes medical care under Sec. 162(l), it is similar to other health insurance and its premiums can similarly be deducted, including for coverage of a self-employed taxpayer’s spouse and qualifying child or other dependent. Children can include those up to age 27 (effective March 30, 2010).

The CCA states that premiums for all Medicare parts are deductible.

Besides a sole proprietor, a self-employed individual for purposes of the deduction can be a partner or S corporation employee who is a more-than-2% shareholder on whose behalf the partnership or S corporation pays the premium. Or the partner or S corporation employee-shareholder may pay the premium directly and be reimbursed by the partnership or S corporation. In either case, the amount must be properly reported and included in the partner’s or employee-shareholder’s gross income.

—Paul Bonner ( ) is a JofA senior editor.

What you should know

There are several components that establish whether a Medicare beneficiary is allowed to include their Medicare Advantage premiums as a tax deduction when filing their taxes. Seniors aren’t automatically eligible to do so. It’s very important to consult with a tax professional prior to filing each year.

When can you deduct Medicare premiums? If you’re self-employed, you may be eligible to deduct all of your Medicare Advantage Insurance premiums. As authorized by the IRS, Medicare beneficiaries with self-employment income may be able to deduct Medicare Advantage premiums just like any other health insurance premium.

Medicare members that itemize their deductions on their tax returns may qualify to deduct copayments, premiums and deductibles when they won’t be reimbursed. These deductible expenses may also include dental bills. There’s a stipulation requiring that all medical expenses exceed 7.5 % of the AGI, which is also predicated by age. Referred to as a below-the line-deduction, Medicare Advantage premiums may be deducted when filing tax returns.

Which Medicare Premiums are tax-deductible?

Medicare Part B Premiums are tax-deductible. Medicare beneficiaries have the option to apply for Part B coverage that covers doctors’ appointments, lab tests, and more. It isn’t required that members have part B Medicare. However, beneficiaries that choose so, are eligible for a bonus when they deduct the Part B premium from their taxes. Medicare part D premiums are also tax-deductible.

Tax-deductible Medicare Advantage Plans

What other Medicare costs are tax-deductible?

Exclusive expenses that are considered acceptable by the IRS include Medicare premiums and annual physical exams are allowable as tax deductions.

Medicare costs that can be deducted:

Acupuncture
Ambulance services
Dentures
Contacts
Eyeglasses and eye exams
Yearly physical exams
Service animals
Long-term care
Oxygen
Psychological care
Laboratory cost
Wheelchairs
X-ray services
Vasectomy
Hearing aids
Chiropractor services

What are the limits and requirements for deducting Medicare premiums and costs?

Medical and dental expenses that cannot be reimbursed, which also encompasses Medicare premiums and copayments, may be allowed as deductions. These deductions are allowed when the Medicare beneficiary itemizes. As a general rule, premiums for Part B and D are deductible for the most part, although premiums for Part A are only deductible under prohibitory circumstances.

What are the limits for deducting Medicare premiums and costs?

There is no limit as it relates to traditional Medicare on any out -of-pocket cost. However as far as Medicare Advantage plans are concerned, out-of-pocket limits exist but they fluctuate based on the specific Medicare carrier involved.

In most cases, members aren’t obligated to pay a premium for Part A because they’ll have already paid Medicare taxes when employed for at least 40 quarters, which is equivalent to 10 working years.

How do you determine your AGI?

Typically, Medicare premiums are based on a beneficiary’s modified AGI. For example, if the MAGI for 2019 was less than or even equal to the “higher-income” threshold, the member pays the “standard” Medicare Part B rate for 2021.

What if you’re employed?

A Medicare member’s income can affect how their AGI is calculated. Higher income beneficiaries as determined by the United States Social Security Administration (SSA) normally incur higher premium cost for Part B which covers any health-related apportionment of Medicare.

Medicare premiums are based on the member’s MAGI. The MAGI is the total adjusted income and tax-exempt interest income. If, for some reason, a life-changing event should occur ― such as a change in marital status or reduction of income due to job loss, pension, or variation of income-producing property ― members can request from the SSA an adjustment to their premium.

What if you’re self-employed?

For Medicare members who are self-employed, the MAGI is your total AGI and tax-exempt interest income. If you file your taxes as “married, filing jointly” and your MAGI is greater than $176,000, you’ll pay higher premiums for your Part B and Medicare prescription drug coverage.

The primary step in calculating the AGI when on Medicare and self-employed is to determine your income for the year. Medicare premiums are based on your MAGI. Self-employed people who earn a profit from their self-employment are allowed on Schedule 1 of the 1040, as an above-the-line deduction which means it lowers their AGI.

How do you deduct Medicare premiums and costs?

Because Medicare recipients may accrue medical expenses that aren’t covered by the insurance, which may include long-term care to lodging during a trip to receive medical care, some of the cost could very well be tax-deductible but within limits. Medicare Advantage premiums can be deducted from your taxes as a below-the-line deduction:

Your Medicare Advantage premiums can be deducted from your taxes as a below-the-line deduction. This requires you to itemize the premiums. If they, along with your other medical costs, exceed 7.5% of your AGI, you qualify for the deduction.
If Medicare members itemize deductions on their income taxes, Medicare costs, such as premiums and copayments, may be deductible.

Unreimbursed medical and dental expenses, including premiums, deductibles, copayments, and other Medicare costs, may be deductible to the degree that they surpass 7.5% of the adjusted gross income. Premiums for Medicare Part B and Part D usually are deductible. Part A premiums are deductible if the member is required to pay a Part A premium.

Medicare consultant

Catherine Tolliver became a Medicare benefits consultant in 2016, a career born out of a love of helping people. She is a licensed Medicare, life, health, and annuity broker with a bachelor’s degree in professional development from Amberton University and a master’s degree in education from the University of Phoenix.

Tolliver enjoys helping seniors navigate their Medicare options, realizing the level of confusion and uncertainty many Medicare beneficiaries experience. Tolliver loves putting a smile on her clients’ faces as she demonstrates patience and invests the time necessary to educate them about the Medicare options available.