Dear Savvy Senior:Can I deduct my Medicare premiums, deductibles and copayments on my income taxes? I had a knee replacement surgery last year and spent quite a bit on medical care out-of-pocket and would like to know what all I can write off. — Frugal Dave
Dear Dave: The short answer is yes, you can deduct your Medicare costs but only if you meet certain conditions required by the IRS. Here’s how it works.
As a taxpayer, you’re allowed to deduct many medical and dental expenses as well as your Medicare out-of-pocket costs. But you can deduct only those expenses that exceed 7.5 percent of your 2018 adjusted gross income (AGI), and you’ll also need to itemize your deductions. Next year, (2019 tax season) the threshold will rise to 10 percent.
Here’s an example. Let’s say that your AGI in 2018 was $50,000. Of that, 7.5 percent is $3,750. If your total allowable medical expenses last year were $8,000, you’d be able to deduct $4,250 ($8,000 minus $3,750). But, if your medical expenses were less than $3,750, you couldn’t claim any as a deduction.
You also need to understand that when taking a medical expense deduction, you don’t actually 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’re taxed. So, for example, if you qualify for a $4,250 deduction and your effective tax rate is 22 percent, you would get $935 in savings from that particular deduction.
To get this deduction you will need to file an itemized Schedule A (1040) tax return. You cannot claim 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 have to pay a premium for Part A, that’s allowed too. You can also deduct the cost of all your deductibles, coinsurance, and copayments under Medicare.
In addition, you’re 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. They also allow transportation to and from medical treatment to count as an eligible medical expense. And if necessary, you may even be able to deduct home alterations and equipment, like entrance ramps, grab bars, stair lifts etc., that can help you age in place.
More Savvy Senior: Smart home devices that can help seniors age gracefully
Some things, however, you cannot deduct like vitamins and supplements unless recommended by a physician to treat a specific medical condition. And 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 won’t 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.