If you receive Social Security benefits throughout the year, the government will report those benefits to you on a form SSA-1099. In many cases, the actual amount that you receive isn’t the same as the number of benefits reported on the form. That’s because adjustments – such as withholding and deductions for premiums – might have been made on your behalf.
One of the most popular deductions from Social Security benefits is Medicare premiums. If you have Medicare premiums deducted from your benefits, you’ll find the amount withheld during 2013 separately stated in box 3.
Those Medicare premiums are deductible on your federal income tax return, assuming that you itemize on a Schedule A. For some seniors, itemizing deductions might not make sense: while the applicable standard deduction rates for 2013 are $12,200 for married taxpayers filing jointly and $6,100 for individual taxpayers, there’s an additional standard deduction amount for seniors. If you were born before January 2, 1949, you can boost your standard deduction by $1,200 ($1,500 if you are not married). That tends to push seniors up to a pretty high bar for itemizing.
If, however, you do itemize, you can deduct the Medicare premiums which were deducted from your Social Security (or Railroad Retirement Board) benefits – or that you pay out of pocket.
- Medicare Part A helps cover inpatient care in hospitals, skilled nursing facilities, hospice, and home health care. For most taxpayers, Medicare Part A is considered “premium-free” since you or your spouse paid into the system while working. That’s the annoying 1.45% that you see reported on your form W-2 as withheld from your pay: it does pay off eventually! If you aren’t one of those “premium-free” folks, you can opt to buy Part A coverage which can cost up to $426 each month. If you pay for coverage, the premiums would be considered medical expenses for purposes of the medical deduction and thus deductible on your federal income tax return. If, however, you receive Part A because of your age or disability without paying out of pocket, you may not claim the premiums as medical expenses.
- Medicare Part B is medical insurance and covers services like lab tests, surgeries, and doctor visits and supplies like wheelchairs and walkers which are considered medically necessary to treat a disease or condition. It’s optional coverage and you have to pay for it if you want it. For most taxpayers, the basic monthly premium in 2013 was $104.90, or $1,258.80 for the year. That number could have been higher if this is your first year of coverage, you enrolled after you were initially eligible, you had a coverage gap or if you were phased into a different rate due to your income level. In most cases, this amount is deducted from your Social Security or RRB check. If you don’t receive a check, you’ll be billed for coverage every 3 months. If you pay for Part B, the premiums would be considered medical expenses for purposes of the medical deduction. It doesn’t matter whether the premiums are paid out of your checks or if you pay every three months.
- Medicare Part C is almost always referred to as a Medicare Advantage Plan. It’s not a separate benefit but is the part of the policy that allows private health insurance companies to provide Medicare benefits. If you want, you can choose to get your Medicare coverage through a Medicare Advantage plan: most plans cover Parts A and B, and often Part D. The plan might also offer extra benefits such as vision and dental and Medicare prescription drug coverage. In a Medicare Advantage plan, you generally pay the Medicare Part B premium and you may also pay an additional premium. Medicare pays the insurer directly for some of the costs and you are responsible for paying the additional costs (the costs and benefits under the plans are heavily regulated). If you pay for Part C, your costs would be considered medical expenses for purposes of the medical deduction. Costs paid by Medicare for your plan are not deductible.
- Medicare Part D is prescription drug coverage. The costs and benefits of the plan vary according to a number of factors, including the amount of your modified adjusted income (MAGI). If you pay for Part D, your costs would be considered medical expenses for purposes of the medical deduction. Costs paid by your employer or another third party for your plan are not deductible.
There is some additional relief for seniors. While the bar for claiming medical expenses has been raised to 10% of adjusted gross income for most taxpayers, you may continue to deduct total medical expenses that exceed 7.5% of your adjusted gross income through 2016 if you are age 65 or older. However, beginning January 1, 2017, the 10% threshold will apply to all taxpayers, including those over age 65.
