November 4, 2014 8:30 am

Medicare and Taxes

Medicare is a government health program primarily for the 49 million Americans age 65 and older. Those covered by Medicare are deemed to have minimum essential health coverage as required by the Affordable Care Act and will not owe any shared responsibility payment (penalty) under the individual mandate. If you are 65 or older, or will turn 65 in 2015, here are the numbers you need to know for premiums and deductibles and how Medicare dovetails with taxes.

2015 Medicare premiums and deductibles

Those who have worked a sufficient number of quarters receive Medicare Part A (hospital coverage) at no additional charge. Working a set number of quarters entitles you to Part B coverage, but you have to pay for it. The monthly premium in 2015 for most Medicare participants is $104.90, the same premium that applied in 2014.

However, approximately 5% of seniors who are considered “high income” pay a higher monthly premium. (The number of seniors treated as “high income” is projected to rise to about 10% by 2019.) The determination of a higher premium is based on modified adjusted gross income (MAGI) for the 2 years prior to the current year. Thus, 2015 premiums are based on 2013 MAGI. MAGI for purposes of the added Part B premium means adjusted gross income increased by tax-exempt interest. The higher premium amounts for 2015 for “high-income” Medicare participants are unchanged from 2014:

 

MAGI of joint filersMAGI of other filers (including married persons who live apart and file a separate return)Part B premium adjustmentTotal monthly Part B premium
Not more than $170,000Not more than $85,000$0$104.90
$170,001–$214,000$85,001–$107,000$42.00$146.90
$214,001–$320,000$107,001–$160,000$104.90$209.80
$320,001–$428,000$160,001–$214,000$167.80$272.70
$428,001 and higher$214,001 and higher$230.80$335.70

For example, in 2015 you are 66 years old and your spouse is 62. Your MAGI in 2013 was $200,000. Your Part B premium for 2015 is $146.90. If your spouse was 65 and older, his/her premium would also be $146.90.

For Part D drug coverage, you pay a premium charged by your drug plan. This is expected to be about $32 in 2015 (which is $1 more than in 2014). Again, for those with MAGI above a certain amount in 2013, there is an additional premium in 2015:

 

MAGI of joint filersMAGI of other filers (including married persons who live apart and file a separate return)Total monthly Part D premium
Not more than $170,000Not more than $85,000Your plan premium
$170,001–$214,000$85,001–$107,000$12.30 + plan premium
$214,001–$320,000$107,001–$160,000$31.80 + plan premium
$320,001–$428,000$160,001–$214,000$51.30 + plan premium
$428,001 and higher$214,001 and higher$70.80 + plan premium

 

Deducting Medicare premiums

Premiums you pay for Medicare, as well as any premiums paid to private insurers for supplemental Medicare coverage, are qualified medical expenses. As such, they are deductible as itemized medical expenses to the extent total medical expenses exceed 7.5% of adjusted gross income. While a 10%-of-AGI threshold applies to those under age 65, seniors use a 7.5% threshold (through 2016). The lower threshold applies for joint filers even if one spouse is younger than 65.

Self-employed individuals, as well as S corporation shareholders owning more than 2% of their corporation, can treat Medicare premiums for all parts as their health coverage cost, which is fully deductible from gross income; no itemizing is required. Of course, unreimbursed medical costs, such as copayments and deductibles, are deducted only as itemized medical expenses.

Conclusion

Medicare participants have until December 7, 2014, to enroll or change their Medicare plans (e.g., to switch from traditional coverage to a Medicare Advantage plan).

 

Source: HHS News Release 10-9-14; http://www.cbo.gov/budget-options/2013/44897; Chief Counsel Advice (CCA) 201228037