Can You Deduct Medicare Costs on Your Income Taxes?
Can I deduct my Medicare premiums, deductibles and copayments on my income taxes? I had knee replacement surgery last year and spent quite a bit on medical care out-of-pocket and would like to know what I can write off.
The short answer is yes, you can deduct your Medicare costs, but only if you meet certain conditions established by the IRS. Here is how it works.
As a taxpayer, you are allowed to deduct many medical and dental expenses as well as your Medicare out-of-pocket costs. But you can only deduct those expenses that exceed 7.5% of your 2018 adjusted gross income (AGI), if you itemize your deductions. Next year (the 2019 tax season), the threshold will rise to 10%.
Here is an example. Suppose that your AGI in 2018 was $50,000. Of that amount, 7.5% is $3,750. If your total allowable medical expenses last year were $8,000, you would be able to deduct $4,250 ($8,000 minus $3,750). But, if your medical expenses were less than $3,750, you could not claim a deduction for your medical expenses.
You also need to understand that when taking a medical expense deduction, you do not get back every dollar you claim. While a tax credit reduces your taxes dollar-for-dollar, tax deductions simply reduce your taxable income, and your savings ultimately depend on the effective rate at which you are taxed. So, for example, if you qualify for a $4,250 deduction and your effective tax rate is 22%, you would get $935 in savings from that particular deduction.
To claim this deduction, you will need to file an itemized Schedule A with your tax return on Form 1040. You cannot claim a deduction for medical expenses on Form 1040A or Form 1040EZ.
The list of allowable medical expenses, as defined by the IRS, is long and fairly flexible. As a Medicare beneficiary, you can deduct your monthly premiums for Part B, Part C (Medicare Advantage plans), Part D drug plans and any supplemental (Medigap) insurance you have. If you pay a premium for Part A, a deduction is available for that too. You can also deduct the cost of all your deductibles, coinsurance and copayments under Medicare.
In addition, you are also allowed to deduct the cost of medical services not covered by Medicare, including dental treatment, vision care, prescription eyeglasses, hearing aids and even long-term care. Transportation to and from medical treatment also counts as an eligible medical expense. If necessary, you may even be able to deduct home alterations and equipment, like entrance ramps, grab bars, stair lifts and other items that can help you age in place.
Some things, however, cannot be deducted. The cost of vitamins and supplements, unless recommended by a physician to treat a specific medical condition, are not deductible. You also cannot deduct Medicare late penalties added to Part B or Part D premiums. Medicare beneficiaries who fail to sign up during their initial enrollment period are typically hit with a penalty that gets added to their monthly premiums, but these additional costs will not count for tax purposes.
For more information, including a detailed rundown of allowable and unallowable medical expenses, see IRS Publication 502 "Medical and Dental Expenses" at IRS.gov/pub/irs-pdf/p502.pdf or call the IRS at 800-829-3676 and ask them to mail you a copy.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.
The short answer is yes, you can deduct your Medicare costs, but only if you meet certain conditions established by the IRS. Here is how it works.
As a taxpayer, you are allowed to deduct many medical and dental expenses as well as your Medicare out-of-pocket costs. But you can only deduct those expenses that exceed 7.5% of your 2018 adjusted gross income (AGI), if you itemize your deductions. Next year (the 2019 tax season), the threshold will rise to 10%.
Here is an example. Suppose that your AGI in 2018 was $50,000. Of that amount, 7.5% is $3,750. If your total allowable medical expenses last year were $8,000, you would be able to deduct $4,250 ($8,000 minus $3,750). But, if your medical expenses were less than $3,750, you could not claim a deduction for your medical expenses.
You also need to understand that when taking a medical expense deduction, you do not get back every dollar you claim. While a tax credit reduces your taxes dollar-for-dollar, tax deductions simply reduce your taxable income, and your savings ultimately depend on the effective rate at which you are taxed. So, for example, if you qualify for a $4,250 deduction and your effective tax rate is 22%, you would get $935 in savings from that particular deduction.
To claim this deduction, you will need to file an itemized Schedule A with your tax return on Form 1040. You cannot claim a deduction for medical expenses on Form 1040A or Form 1040EZ.
Allowable Medical Expenses
The list of allowable medical expenses, as defined by the IRS, is long and fairly flexible. As a Medicare beneficiary, you can deduct your monthly premiums for Part B, Part C (Medicare Advantage plans), Part D drug plans and any supplemental (Medigap) insurance you have. If you pay a premium for Part A, a deduction is available for that too. You can also deduct the cost of all your deductibles, coinsurance and copayments under Medicare.
In addition, you are also allowed to deduct the cost of medical services not covered by Medicare, including dental treatment, vision care, prescription eyeglasses, hearing aids and even long-term care. Transportation to and from medical treatment also counts as an eligible medical expense. If necessary, you may even be able to deduct home alterations and equipment, like entrance ramps, grab bars, stair lifts and other items that can help you age in place.
Some things, however, cannot be deducted. The cost of vitamins and supplements, unless recommended by a physician to treat a specific medical condition, are not deductible. You also cannot deduct Medicare late penalties added to Part B or Part D premiums. Medicare beneficiaries who fail to sign up during their initial enrollment period are typically hit with a penalty that gets added to their monthly premiums, but these additional costs will not count for tax purposes.
For more information, including a detailed rundown of allowable and unallowable medical expenses, see IRS Publication 502 "Medical and Dental Expenses" at IRS.gov/pub/irs-pdf/p502.pdf or call the IRS at 800-829-3676 and ask them to mail you a copy.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.
