There’s no rule that lets you automatically deduct your medicare premiums, but there are situations where they may be tax-deductible.
When can you deduct medicare premiums?
There are generally two situations where you can deduct Medicare premiums.
The most common, including for retirees, is under the medical expense itemized deduction.
If you’re self-employed, even part-time, you may qualify for the self-employed health insurance deduction.
How does the medical expense deduction work?
The medical expense deduction allows you to take an itemized deduction for healthcare costs that exceed 7.5% of your Adjusted Gross Income. This includes health insurance premiums, medical care, dental expenses, and medical equipment.
All of your medical costs are added up during the year and your deduction is equal to the amount above 7.5% of your AGI. For example, if your AGI is $100,000, 7.5% is $7,500. If you had $10,000 in qualifying medical costs, you can take a $2,500 itemized deduction ($10,000 – $7,500).
Only your out-of-pocket cost gets counted. For example, if you paid $100 and your insurance company paid $900, your qualifying expense is $100. Of course, you can also deduct your insurance premiums whether they’re for Medicare or other supplemental insurance that qualifies under the IRS rules.
In order to claim the medical expense deduction you have to itemize your personal tax deductions. You can’t take the medical expense deduction with the standard deduction.
Note that the IRS uses slightly different guidelines for what qualifies as an eligible, deductible medical expense compared to what Medicare covers. For example, Medicare may cover cosmetic surgeries that the IRS doesn’t allow a deduction for. Don’t assume that you have a qualifying, deductible medical expense only because it’s covered by Medicare.
If you want to make sure you can receive a tax break, talk to your tax advisor before you opt for elective medical care.
How does the self-employed health insurance deduction work?
The self-employed health insurance deduction allows people with self-employment income to take a tax deduction for their health insurance coverage. Since 2012, this includes Medicare premiums.
Self-employment income can include gig economy work like driving for Uber or shopping for Instacart.
In order to qualify for the deduction, you generally can’t qualify to receive health insurance coverage through an employer or your spouse’s employer.
Even though the self-employed health insurance deduction is related to your business income, you won’t list your Medicare premiums as deductible expenses on your Schedule C. Instead, they go on Schedule 1 of your Form 1040.