Medicare is a national health insurance program that provides coverage to qualified persons age 65 and up (or younger, if you have an eligible disability or meet certain other qualifications). While Medicare is generally far cheaper than a comparable standard health insurance policy, it’s not completely free. Most people covered under Medicare pay monthly premiums, just like people with private health insurance. The good news is you may be able to get a tax break for paying those Medicare premiums.

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Understanding Medicare premiums

Medicare isn’t a single insurance program; it’s more like a bundle of different programs that each cover a separate aspect of your healthcare. Thus, the Medicare premiums you pay will vary depending on which parts of Medicare you choose to use.

Medicare Part A

If you completed at least 40 calendar quarters of Medicare-covered employment (meaning you paid FICA taxes on your wages during that time), you’ll get Medicare Part A without paying any premiums at all. Medicare Part A provides coverage for inpatient hospital services, skilled nursing facilities (a.k.a. nursing homes), and some aspects of home healthcare.

If you don’t have those 40 calendar quarters in your work history, you can still get Medicare Part A, but you’ll need to pay a monthly premium. In 2021, the Medicare Part A premium will be $259 per month if you have at least 30 calendar quarters of Medicare-covered employment in your past or $471 a month if you don’t have those 30 quarters.

Medicare Part B

The second half of Original Medicare, Medicare Part B covers physician services and outpatient hospital services, along with a few other odds and ends. You’ll need to pay a monthly premium for said coverage—the standard Medicare Part B premium for 2021 will be $148.50. Some people pay a slightly higher monthly premium for Part B if their income is above a certain amount on a prior tax return. If you’re receiving Social Security benefits, your Medicare Part B premiums will most likely be deducted right out of your Social Security check.

Medicare Part C

Many Medicare enrollees choose to get coverage over and above the basic coverage provided by Medicare Parts A and B. Medicare Part C, also known as Medicare Advantage, is health insurance coverage from a private insurer that covers everything covered under Original Medicare, plus more. The exact coverage will vary from one provider and plan to another. Many Medicare Advantage plans also cover prescriptions, which means you won’t need a Medicare Part D plan (more on those below).

If you get a Medicare Part C policy, you’ll need to pay your Part B premium plus an additional premium to the insurer providing the Medicare Advantage policy. You may opt to have your Medicare Part C monthly premiums deducted from your Social Security benefits checks.

Medicare Part D

Medicare Part D policies cover prescription drug costs. Like Medicare Part C, Part D policies are provided by private insurance companies, not the U.S. government. If you get a Medicare Part C policy that includes sufficient prescription drug coverage, you won’t need a Part D policy at all. If you do choose to get a Part D policy, you’ll pay the insurer a monthly premium. As with Medicare Part C, you may have the Part D premiums paid out of your Social Security benefits.

Medigap

The alternative to a Medicare Advantage plan is Medicare Supplement Insurance, a.k.a. Medigap. Like Medicare Part C, Medigap policies come from private insurers. However, all Medigap policies are designed to fit a very specific template. 

For example, if you decide to get a Medigap Plan L policy, you’ll find that every Plan L policy has identical coverage no matter which insurer offers it. Interestingly, different insurers will charge different monthly premiums for identical Medigap policies, so it’s important to compare the Medigap plan of your choice across different carriers to get the one with the lowest monthly premium.

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Are Medicare Premiums Deductible in 2020?

Any Medicare premiums you paid in 2020 are tax-deductible because they’re considered medical expenses. However, deducting medical expenses on your tax return is a bit complicated.

The Medical Expense Tax Deduction

Qualifying medical expenses (which include health insurance premiums such as Medicare premiums) are considered deductible on your income tax return. The catch is that medical expenses are an “itemized deduction.”

When you file your 2020 tax return, you’ll have the option to go with either a standard deduction or an itemized deduction. The standard deduction is a predetermined amount that you can deduct from your income to reduce your taxes, and it is based on your filing status (single, married filing jointly, head of household, etc.). The alternative is to decline the standard deduction in favor of itemizing, which means that you add up all your qualified itemized deductions—such as medical expenses, mortgage interest, state income taxes, and a few others—and claim that amount. Itemized deductions are totaled up on the Schedule A tax form.

In order to claim the medical expenses deduction, which includes your Medicare premiums, you’ll need to itemize your deductions rather than take the standard deduction. This usually only makes sense if the total of all your itemized deductions is greater than the standard deduction.

Just to make things a bit more complicated, the medical expense deduction—unlike most itemized deductions—has a special threshold. You can only deduct medical expenses that are more than 7.5 percent of your adjusted gross income (AGI) for the year. For example, if your AGI for 2020 was $50,000, then you can claim your qualified medical expenses for the year that were greater than $3,750. So if your medical expenses were $5,000 for 2020, you’d actually deduct $5,000 minus $3,750, which comes to $1,250.

Are Co-pays Tax-deductible?

Premiums generally aren’t the only Medicare-related expense you’ll pay during the year. Many Medicare plans also require co-pays. This is an amount that you pay for a healthcare service once you’ve reached your deductible for that service.

For example, let’s say that the co-pay for a doctor’s office appointment is $15. In that case, if you hit your related deductible for the year, you pay the doctor $15 out of pocket and your insurance would cover the remainder of the basic charge for that visit. As a rule of thumb, the higher your monthly insurance premium, the lower the co-pays tend to be (and vice versa).

Because co-pays are medical expenses that you pay out of pocket, they are considered qualified medical expenses and can be deducted from your taxes as such. Note that you’ll still have to itemize your deductions and hit the 7.5 percent AGI threshold in order to claim your co-pays, just as you would to deduct your Medicare premiums.

Note that these rules apply to your federal income tax return; different states have different rules about how and when you can deduct medical expenses on your state tax return. Check with your state’s tax board, or review the instructions for your state income tax return to see if you can claim any additional medical expense deductions on that return.

Are Prescriptions Tax-deductible?

Whether or not you choose to get a Medicare Part D policy, you may have prescription expenses during the year. Any medication prescribed by your doctor is considered a qualified medical expense and can be deducted as a medical expense in your itemized deductions.

Note that this is only the case for prescribed medications. Any medication you purchase over the counter without a prescription is not a qualified medical expense, except for insulin.

Is Social Security Taxed Before Or After the Medicare Deduction?

Depending on your total household income, you may or may not pay federal income taxes on your Social Security benefits. If your Social Security benefits are taxable, you will pay taxes on the entire amount of the benefits before any Medicare premiums that were paid out from your Social Security.

The system works this way because if your Social Security benefits were taxed based on the amount left after deducting Medicare premiums, and you could also deduct your Medicare premiums as an itemized deduction, you’d basically be getting the tax deduction on your premiums twice.

FAQ: Medicare and Tax Deductions

Are insurance premiums tax-deductible?

Not all types of insurance premiums are tax-deductible on your federal tax return. Health insurance premiums are deductible, but only as an itemized deduction. In the past, mortgage insurance premiums were also eligible for an itemized deduction; however, that’s not the case as of this writing. If you own a rental property, you can deduct your landlord’s insurance premiums; however, as a homeowner, you cannot deduct the homeowner’s insurance premiums for your own residence. Income tax laws change from year to year, so it’s possible that other insurance premiums will become tax-deductible in the future.

Are Medicare premiums a qualified medical expense?

Health insurance premiums (including Medicare premiums) are considered a qualified medical expense, which means they can be deducted on Schedule A. Note that you will need to itemize your deductions rather than claim the standard deduction, and you can only deduct medical expenses in excess of 7.5 percent of your AGI for the year.

Are Medicare premiums deducted from Social Security?

If you are receiving Social Security benefits at the time you sign up for Medicare, your Medicare Part B premiums will automatically be deducted from your Social Security benefits. You can contact the Social Security Administration if you prefer to pay your Medicare Part B premiums directly. Medicare Part C and Part D premiums can be paid out of Social Security benefits, but only if you ask your insurer to set this up for you.

Conclusion: Compare Insurance Plans to Save Money

Whether you’re shopping for Medicare insurance, car insurance, or some other type of policy, comparing insurance plans is the only way to make sure you’re paying the right price. Insurers offering identical coverage will often charge very different premiums because they use different factors to determine those premiums.

Luckily, you can use Insurify’s quote comparison tool to quickly and easily compare policies with similar coverage levels and see what different insurers charge for those policies. And you can easily repeat this process every year when your policies are due for renewal so you can make sure your current policy is still the best deal out there.

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Updated January 8, 2021

Wendy Connick is the founder and owner of Connick Financial Solutions, a provider of tax and bookkeeping services and a QuickBooks Online Certified ProAdvisor. A long-time freelance writer, she specializes in business and finance articles on subjects including taxes, investing, and retirement. Wendy is an Enrolled Agent (EA), the only federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS. She is a member of the National Association of Enrolled Agents and a certified volunteer for VITA (Volunteer Income Tax Assistance), an IRS-sponsored program to provide free tax help for low-income individuals and families.