From Thomson-Reuters and the Pinnacle CPA Advisory Group —
Medicare health insurance premiums can add up to big bucks, especially if your income exceeds certain thresholds. Here’s a summary of the different types of Medicare premiums and how they can affect your taxes.
Medicare Part B premiums
Medicare Part B coverage is commonly called Medicare medical insurance or Original Medicare. It mainly covers doctors and outpatient services, and Medicare-eligible individuals must pay monthly premiums for this benefit. The monthly premium for the current year depends on your Modified Adjusted Gross Income (MAGI), as reported on your Form 1040 for two years earlier. MAGI is the AGI number shown on your Form 1040 plus any tax-exempt interest income.
Your 2022 Part B premium depends on your 2020 MAGI. For 2022, the maximum monthly premium is $578.30 ($6,939.60 for the full year) per covered person if your 2020 MAGI was above $500,000 and you filed as single or above $750,000 if you filed a joint return.
The 2022 Part B premiums are significantly higher than the 2021 amounts. We don’t yet know the numbers for 2023, but they will probably be considerably higher than the 2022 amounts. Your 2023 Part B premium will depend on the MAGI number reported on your 2021 Form 1040. As MAGI goes up the ladder, so will the 2023 Part B premium.
Medicare Part D (prescription drug coverage) premiums
Medicare Part D premiums are for private prescription drug coverage. Base premiums vary depending on the plan you select. Higher-income individuals must pay a surcharge on top of the base premium. Your 2022 surcharge, if applicable, depends on your 2020 MAGI, and the surcharge increases with the MAGI amount that was reported on your 2020 Form 1040. For 2022, the maximum monthly surcharge is $77.90 ($934.80 for the full year) if your 2020 MAGI was above $500,000 and you filed as single or above $750,000 if you filed a joint return.
Thankfully, the 2022 Part D surcharges barely budged from the 2021 amounts. We don’t yet know the numbers for 2023, but we can hope for the best.
Tax deductions for Medicare health insurance premiums
Premiums for Medicare health insurance coverages can be combined with other qualifying health care expenses for purposes of claiming the itemized federal income tax deduction for medical expenses on Form 1040. Under current law, you can claim an itemized medical expense deduction to the extent your total qualifying expenses exceed 7.5% of your AGI. If you’re self-employed or an S corporation shareholder-employee, you can potentially claim an above-the-line deduction for health insurance premiums, including Medicare health insurance premiums. If you qualify, you need not itemize to collect the resulting tax savings.
Medicare premiums can be reimbursed with tax-free HSA distributions
You can take federal-income-tax-free Health Savings Account (HSA) distributions to reimburse yourself for Medicare health insurance premium costs if you are age 65 or older.
Conclusion
Medicare health insurance premiums and the related tax implications have a lot of moving parts. We have only covered the tip of the iceberg here. Please contact us if you have questions or want more information.
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