How To Deduct Medigap Premiums On Taxes
So, weve established that Medigap premiums are, in fact, deductible. How do you go about deducting them?
Very easy to do you include them on Schedule A, Itemized Deductions for Form 1040, as itemized medical expenses. Again, you must be itemizing deductions in order to get a benefit from this deduction.
In an example, lets say your AGI is $30,000. From that number, 7.5% is $2,250. If your itemized deductions are $4,000, then you have deductible expenses of $1,750. Using these number, if your medical expenses did not exceed $2,250, you would not be able to itemize and deduct medical expenses.
Understanding Health Insurance Premiums
Health insurance premiums, the amount paid upfront in order to keep an insurance policy active, have been steadily increasing as the cost of healthcare has increased in the United States. Premiums can be thought of as the “maintenance fee” for a healthcare policy, not including other payments that consumers have to pay such as deductibles, co-pays, and other out-of-pocket costs.
When the Affordable Care Act was passed by President Barack Obama in 2010, it allowed certain families to access premium tax credits on their health insurance plans, relieving some of the burdens of skyrocketing health insurance premiums.
According to research by the Kaiser Family Foundation, a non-profit organization that focuses on healthcare issues in the U.S., roughly half of Americans receive health insurance through an employer-based plan.
If your medical premiums are deducted through a payroll deduction plan, it’s more than likely that youre covering your share of your insurance premium with pre-tax dollars. So, if you deducted your premiums at the end of the year, youd effectively be deducting that expense twice.
Follow The Rules To Deduct
However, you can only benefit from the medical expense deduction by following specific rules. Youll need to file your taxes in a certain way, itemizing your deductions instead of choosing the standard deduction. Additionally, your medical expense deductions only begin to count after they surpass 10% of your adjusted gross income . AGI is your total pre-tax income before certain non-itemized deductions such as health savings account spending.
Depending on the circumstances, you may be better served by not deducting medical expenses. You may only want to deduct medical expenses in one year, and not another.
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If Your Healthcare Costs Are More Than 10 Percent Of Your Agi
The other situation in which you can deduct some of your Medicare costs is if they amount to more than 10 percent of your AGI . In this case, you can deduct all types of healthcare costs, not just premiums. This will apply to all health insurance costs, not just Medicare. This also includes other types of non-medical fees that are related to your healthcare, such as transportation to and from your healthcare appointments.
In this situation, you dont actually deduct all of your healthcare costs. Instead, you deduct any healthcare costs that go over 10 percent of your AGI. For example, if your AGI comes out to $50,000, and you spent $5,200 on healthcare that year, then you can only deduct $200 from your taxes since this is the amount over 10 percent that you paid.
Are My Medicare Premiums Deductible
In these uncertain times , health insurance and medical coverage has become an important issue. Seniors over the age of 65 can apply for and be covered by Medicare. Many people have also added Medicare supplemental insurance plans to cover medical costs not included in Medicare such as co-pays, deductibles and other costs. With the economy the way it is, every penny of savings counts and that includes saving on taxes.
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Is My Medicare Advantage Premium Tax Deductible
According to the IRS, if you itemize your deductions, you may be able to deduct medical and dental expenses for yourself, your spouse, and your dependents. However, you may only deduct the amount of your medical expenses that exceed 7.5% of your adjusted gross income.
The IRS specifically states that deductible medical expenses include payments for insurance premiums for policies that cover
- Medical care
- Qualified long-term care
People who are employees generally cant include premiums they pay under an employer-sponsored policy. Since Medicare Advantage plans monthly premiums cover medical care and are not employer-sponsored, they generally would qualify for a tax deduction.
Supplemental Insurance Policies Funded 100% By Employers
To ensure that employees are not surprised by a taxable event when filing a claim on their supplemental insurance policies, many employers opt to fund these in whole or part for their employees.
When an employer pays for the costs of their employees accident or health insurance, the premium costs are not considered wages and are therefore not subject to FICA, FUTA, or Federal Income Tax
As with any new benefit, employers should review their options with their accountant and benefits administrator but, generally, 100% of the premium cost is deductible to the business when the employer funds it 100%.
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Health Care Costs You May Be Able To Deduct From Your Taxes
As tax season approaches each year, its time to gather up your tax documents, crunch the numbers and hope for the best.
For many older Americans, it also means utilizing some key health care-related deductions.
Here is a list of 17 health care expenses that seniors or people with disabilities may be able to deduct from their taxes this year.
Medicare Part D Premiums And Costs
Medicare Part D plans are sold by private insurance companies as an optional addition to Original Medicare. These plans provide their members with coverage for the prescription drugs they need to survive. Each Part D plan has a uniqueformulary, which is the list of drugs it covers.
It is important to ensure that the drugs you are currently taking or expect to take in the future are included in your plans formulary. Otherwise, you could end up paying for those drugs entirely out of pocket.
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Jointly Funded Supplemental Insurance Policies
Many employers pay the cost of the supplemental insurance premiums for their employees and extend the option to add coverage for spouses and dependents through payroll deductions. For example:
An employer pays for an Accident insurance policy for all of her employees. The plan includes automatic coverage for qualified dependents, and employees may opt to extend coverage to their spouses through payroll deductions.
The employers premium cost for their five employees is $200 per month.
Two employees opt to have post-tax deductions taken from each paycheck to cover their spouses totaling $25 each per month.
Both employees will pay taxes on their portion of the post-tax premium deductions. The employer will also be responsible for FUTA if the limit has not been met and the employer portion of Social Security and Medicare.
The employer will send a $250 payment to the benefits provider each month, $200 of which will be deductible to the business.
Is Medicare Supplemental Insurance Tax Deductible
taxpayers have only been allowed to deduct medical expenses that exceeded 7.5 percent of annual AGI .Medicare Tax Deduction #2: Actual Medicare Payments Are Also Tax Deductible, To begin looking for a Medicare Supplement plan in your area, or other out of pocket approved medical expenses), supplies the physician uses, current Medigap policyholders and those buying policies before 2020 will still be eligible for the deductible coverage after that date., Verified 3 days ago Url: https://www.medicarefaq.com/faqs/medicare-supplemental-insurance-tax-deductible/ Go Now
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Talk To A Tax Attorney
Need a lawyer? Start here.
Are Medicare Part A Premiums Tax
If youve worked enough quarters, you arent writing a check for your Part A premium its coming out of your Social Security check. Obtain your SSA-1099 from the Social Security Administration to keep track of these costs. If you havent worked the necessary 40 quarters and dont get Part A premium-free, your Part A premiums could be tax-deductible.
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Other Ways To Lower Your Tax Bill
If youre not eligible to deduct your health insurance premiumseither because you dont meet the cost threshold or because you opt to take the standard deduction when you’re filing taxesthere are other ways to reduce your overall medical expenses.
You might consider electing a high-deductible health plan as a type of insurance coverage. HDHPs typically offer lower premiums than other plans. They also offer the unique feature of enabling plan subscribers to open up a Health Savings Account , a tax-advantaged savings account. Money that is contributed to an HSA account can be used to pay for out-of-pocket healthcare expenses. Your contributions to an HSA are tax-deductible and, when used for eligible expenses, your withdrawals are tax-free, too.
What Does Medicare Plan F Cover
Those who have Medicare Plan F won’t pay out-of-pocket costs for Medicare parts A and B. Policyholders would only pay the premiums, which start at $0 for Part A and $135.50 for Part B. Additionally, individuals would not have to pay the deductible, which is $1,364 for Part A and $185 for Part B.
Supplemental Medicare Plan F will cover:
- Medicare Part A coinsurance and hospital costs
- Medicare Part A deductible
- Hearing aids and routine hearing tests
- Cosmetic surgery
- Prescription drugs
The most important to note of these coverage gaps are prescriptions drugs and we would recommend purchasing Medicare Part D if you need this coverage. Medicare Plan F does provide coverage for injectable or infusion drugs given in a clinical setting but does not pay for other prescription drugs. The ideal coverage package would include Medicare parts A and B, along with the Part D prescription drug plan and a supplemental Medigap policy such as Plan F.
Unfortunately, none of the Medicare and Medigap policies cover dental care. If you are looking for dental coverage, then you would need to purchase a stand-alone dental insurance policy.
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Are My Medicare Premiums And Out
Under the U.S. tax code, you may be able to deduct health care expenses beyond a certain percentage of your income if you itemize deductions. As of 2019, out-of-pocket medical expenses that exceed 10 percent of your gross income could be tax-deductible.
The tax code states the following expenses may count toward the itemized health care deduction:
- Health insurance premiums, such as Medicare premiums, paid with after-tax income
- Premiums for a qualified long-term care insurance
You may also itemize:
- hospital, hospice, or skilled nursing care
- outpatient services including doctor visits, ambulance rides, and diagnostic tests
- prescription medications
- preventive care
- home modifications necessary to keep you safe
Keep in mind that only the expenses you pay out-of-pocket count toward the itemized deductions. In other words, if you have a $20,000 hospital bill, and Medicare pays all but $1,500 of it, only the $1,500 you pay for your care can be itemized on your return, not the entire $20,000 bill.
To look for Medicare plan in your area, enter your zip code on this page.
The information in this article isnt a substitute for advice from a tax professional, so be sure to talk to your tax preparer about your health care deductions. Its always a good idea to keep receipts for all health care expenses, including Medicare premiums, copayments, and coinsurance amounts to help you and your tax professional when its time to file your taxes.
New To Medicare?
What Is The Difference Between Medicare Plans F And G
There are two main differences between plans F and G: the premium and the amount of coverage you receive. Here’s a comparison of the coverage differences between the two Medigap plans:
|Medicare Part B excess charges|
|Skilled nursing facility coinsurance|
As you can see, Medigap Plan G would not provide coverage for the Medicare Part B deductible. This means if you were to purchase Plan G, you would have to pay the deductible for Part B, which is $185 for 2019, as you receive health services.
Additionally, typical premiums for Medicare Plan F are slightly higher when compared to Plan G â $140 versus $110, respectively â and have a larger rate increase from year to year. The increased premiums are because of the more comprehensive coverage that you receive through Plan F.
Editorial Note: The content of this article is based on the authorâs opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
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Summary Of Medicare Benefits And Cost
The chart below is a comprehensive list of Medicare Part A and B costs, including premiums, deductibles and coinsurance. Medicare supplemental insurance, known as Medigap, can help cover some of the gaps in coverage and pay for part or all of Medicares coinsurance and deductibles, depending on the policy. Some Medicare Advantage plans may also help cover these costs. See Medigap: Medicare Supplemental Insurance and Medicare Advantage for more information.
What Is A Tax Deduction
According to the IRS, a tax deduction is something you subtract from your income before you figure out the amount of tax you owe. Tax deductions can be work related, itemized, or for education, health care, and investments.
For example, if your income is $40,000 a year and you have $1,000 of deductions, you taxable income may therefore be $39,000. More deductions may mean you owe less in taxes. However, a deduction is not the same as a refund. Having $1,000 in deductions does not mean that you will get a refund for this amount from the IRS.
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Is Medicare Plan F Going Away
Starting in January 2020, new enrollees will not be able to purchase Medigap Plan F. However, if you were eligible for Original Medicare before 2020 then you would still be allowed to enroll and keep your current Plan F policy. Furthermore, Plan F is still one of the best Medicare Supplement plans available on the market. The change is due to legislation in Congress focused on giving doctor better pay when they provide services to a Medicare patient.
Another Alternative: Using Your Hsa Funds To Pay Medicare Premiums
If you have a health savings account , know that you can withdraw tax-free money from the account and use it to pay your premiums for Medicare Parts A, B, C, and D . This is an alternative to deducting your premiums on your tax return, since you cant do both. But its something to keep in mind if you would otherwise have to use after-tax money to cover your Medicare premiums.
You cant continue to contribute to your HSA after youre enrolled in Medicare, but you can continue to withdraw funds from your HSA. As long as you use them for a qualified medical expense, which includes premiums for Medicare Parts A, B, C, and D, you dont have to pay taxes on the money.
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Supplemental Insurance Policies Continue To Gain Traction As A Popular Approach To Creating More Robust Benefits Packages Employers Should Know How These Benefits Are Treated For Taxation Purposes And How They Can Benefit From Offering Them As Well
Supplemental insurance plan premiums may be paid in one of several ways. They may be:
Employee-funded with pre-tax earnings for qualified Section 125 Cafeteria plans
Employee-funded with post-tax wages
Jointly funded by both employee and employer
Each approach has its benefits and drawbacks, and employers should consider both the long-term and short-term impact of each method before implementing a new supplemental insurance option.
What Records Should You Keep For Your Medicare Tax Deductions
Keep track of your receipts if you want to maximize your deductions. For every medical or dental expense, make note of what the expense is for to determine if its a qualified expense.
Also, maintain records for all of your Medicare premiums so you can identify the appropriate deductions to take. The more organized you are during the year, the easier it will be to calculate eligible expenses on your tax return. For further guidance, consult with a tax professional.
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Deductions For Qualified Unreimbursed Healthcare Expenses
However, you may be able to deduct some of your premiums if you purchase health insurance on your own using after-tax dollars. For the 2020 and 2021 tax year, youre allowed to deduct any qualified unreimbursed healthcare expenses you paid for yourself, your spouse, or your dependentsbut only if they exceed 7.5% of your adjusted gross income .
AGI is a modification of your gross income. It includes all your sources of incomewages, dividends, spousal support, capital gains, interest income, royalties, rental income, and retirement distributionsminus any number of allowable deductions from your income, including retirement plan contributions, student loan interest payments, losses incurred from the sale or exchange of property, early-withdrawal penalties levied by financial institutions, among others.
This is a lower amount than in 2019, in which any healthcare costs that were greater than 10% of AGI were eligible for the deduction. In 2017 and 2018, the cutoff was also 7.5%.
Expenses that qualify for this deduction include premiums paid for a health insurance policy, as well as any out-of-pocket expenses for things like doctor visits, surgeries, dental care, vision care, and mental healthcare. However, you can deduct only the expenses that exceed 7.5% of your AGI.