Monthly Medicare premiums are on the list of allowable tax deductions on your federal tax return.
If you are self-employed, you are allowed to deduct qualifying medical expenses from your adjusted gross income (AGI) whether you choose to itemize your tax deductions or not.
If you aren’t self-employed, you can deduct qualifying medical expenses only if you itemize your deductions, and you can only deduct expenses that exceed 7.5 percent of your AGI.
Let’s face it: Medical bills can be taxing. The good news is that you may be able to ease the burden when you file your returns each April.
Medicare premiums, along with a long list of medical expenses, are considered tax deductible by the Internal Revenue Service (IRS).
If you no longer pull in a significant salary from an employer, you may qualify to save on your tax return by deducting a portion of your medical expenses — including your monthly Medicare premiums. And even if you earn a steady salary, you may still qualify if your medical expenses are significant.
In addition, if you earn income as a self-employed person, you should be able to save some money on your federal taxes by deducting your medical expenses regardless of your income or how you file your taxes.
Is Medicare tax deductible? Yes — but doing so only makes sense under the right set of circumstances.
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Medicare premiums, paid on a monthly basis throughout the year, represent an easily tracked medical expense that you may be able to deduct on your federal tax return. But in actuality, Medicare premiums are just one item on a long list of medical expenses that are tax deductible — if you meet certain requirements.
According to the IRS, the list of medical expenses that may be tax deductible includes “payments for the diagnosis, cure, mitigation, treatment or prevention of disease, or payments for treatments affecting any structure or function of the body.”
So, are Medicare payments tax deductible? Yes, as are many other medical expenses.
The IRS list includes things that probably won’t surprise you, like Medicare copayments and medically necessary durable medical equipment. It also includes some things that might surprise you, like prescribed treatments for substance abuse and transportation costs associated with medical appointments.
In order for you to deduct any medical expenses on your tax return, you must choose to itemize your taxes. This means you choose to individually claim expenses that the IRS considers tax deductible. You can either itemize your deductions or take the IRS’ standard deduction — whichever benefits you more. That’s why it’s important to know what medical expenses you can deduct.
Just about everyone has some medical expenses that the IRS deems tax deductible, but not everyone can or necessarily should take advantage of the opportunity.
- If you are self-employed, you can deduct all of your qualifying medical expenses whether you itemize your deductions or not.
- If you aren’t self-employed and you choose to itemize on your tax return, you should take advantage of tax deductions for medical expenses.
- If you aren’t self-employed and choose to take the standard federal deduction instead of itemizing, you cannot claim tax deductions for medical expenses.
Regardless of your employment status, everyone who files a federal tax return must answer a fundamental question: Should I itemize my deductions or take the standard deduction?
If you are among the growing number of seniors who are self-employed, you can deduct all of your qualifying medical expenses regardless of your answer to that question. If you’re self-employed, the deduction reduces your adjusted gross income (AGI), a key determination in how much tax you pay, before you decide whether to itemize.
But if you aren’t self-employed, your decision whether to itemize sets the stage for whether you can deduct medical expenses. Those who itemize can deduct medical expenses (if they have enough medical expenses to qualify); those who don’t itemize can’t deduct medical expenses.
The Tax Cuts and Jobs Act (TCJA), nearly doubled the standard deduction, making it much more common for taxpayers to take the standard deduction as opposed to itemizing their deductions. Still, it’s always wise to analyze which approach reduces your tax burden, and medical expenses can play into that.
If you aren’t self-employed, then having a small income or significant medical expenses (or both) may be necessary if you want to deduct your medical expenses. That’s because unless you’re self-employed, you can only deduct medical expenses that exceed 7.5 percent of your AGI. So, if your AGI is $50,000, for example, then your first $3,750 in qualifying medical expenses aren’t tax deductible; any medical expenses beyond that are.
While this online tool provided by the IRS can help you determine if you qualify to deduct any of your medical expenses, it doesn’t provide a complete picture. For that, you need a qualified tax expert or reliable tax software that can take all of the financial information you have collected — including your medical expenses — and compute whether you should take the standard deduction or itemize your deductions.
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In order to use the IRS online tool designed to help you determine if your premiums and other medical expenses are tax deductible, the IRS says that you will the following information:
- The type and amount of medical expenses you paid.
- Confirmation that the expenses are for the tax year in question and that they weren’t already reimbursed or paid via a Health Savings Account or an Archer Medical Savings Account.
- Your tax filing status and adjusted gross income.
Because medical expenses likely are just one part of the equation that determines whether you are going to itemize on your tax return, one approach would be to use the tool to determine if a specific medical expense qualifies under IRS rules. Once you know the total amount of medical expenses you can claim, you can use this information alongside other information to determine whether you should itemize. Most financial advisors and tax software will help you determine which medical expenses qualify for deduction and whether you should take advantage.
No. While you may or may not be in position to claim a tax deduction for Medicare premiums, your Medicare premiums and other medical expenses aren’t taxable and don’t have to be reported on your tax return if you’re not claiming a deduction.