Medicare and Taxes: How Your 2023 Medicare Premiums Are Affected by Your 2021 Tax Filing
The 60+ million Americans who are enrolled in Medicare will be paying significantly more in premiums this year than in 2021. But how about 2023 premiums? Did you know that what your Form 1040 includes this year will impact your premiums for next year? And did you also know that if you are a profitably self-employed individual, you can deduct your Medicare premiums and potentially save a bunch of money?
As you begin the process of filing 2021 taxes, you should be aware that what goes on a completed Form 1040 will have an impact on what premiums you will be paying in 2023.
Here’s what you need to know:
Self-employed people are allowed to deduct their health insurance premiums on Schedule 1 of the 1040 form as an “above the line” deduction (which lowers their AGI). The IRS considers you to be self-employed if you own a business as either a sole proprietor (Schedule C), partner (Schedule E), limited liability company (LLC) member, or S corporation shareholder with at least 2% of company stock.
You can deduct Medicare premiums if you’re not self-employed by itemizing deductions using Schedule A. If you are planning to itemize, you can include out-of-pocket medical expenses that exceed 7.5% of your AGI.
Medicare Part B covers medical visits, including services that are deemed necessary or preventive and are part of “Original Medicare” (along with Medicare Part A). This means you are automatically eligible for Part B coverage once you are within three months of your 65th birthday.
Medicare Part D covers prescription drugs. It is not part of the original Medicare. So, while you are on Medicare, any prescription drug coverage you receive must be purchased on top of “Original Medicare” or your chosen Medicare Advantage or Supplement plan.
At the end of the day, when it comes to the complicated world of filing taxes, it pays to know what impact your filing has for the present and in the future. More importantly, it pays to know if you qualify for any possible deductions. With Medicare premiums continually on the rise, this is not something that should be overlooked.
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