Medicare health insurance premiums can add up — especially if you’re upper-income, married, and both you and your spouse pay premiums. Here are the basics of how Medicare health insurance works, including 2023 premium amounts and when you can deduct Medicare health insurance premiums on your tax return.
Important: If you have a health savings account (HSA), you can take federal-income-tax-free HSA distributions to reimburse yourself for Medicare health insurance premiums. If you take distributions, your tax preparer will fill out IRS Form 8899, Health Savings Accounts (HSAs), and include it with your federal income tax return for the year.
Medicare Part B
Medicare Part B coverage is commonly called Medicare medical insurance or Original Medicare. It primarily covers doctors, hospitals, and outpatient services. Medicare-eligible individuals must pay monthly premiums for this benefit.
The monthly premium for the current year depends on your modified adjusted gross income (MAGI), as reported on your Form 1040 for two years earlier. MAGI refers to your adjusted gross income (AGI) plus any tax-exempt interest income.
Your 2023 premiums will depend on your 2021 MAGI, as reported on your 2021 federal income tax return. For 2023, most individuals will pay the base Part B premium of $164.90 per covered person ($1,978.80 if you pay premiums for the full year). Higher-income individuals must pay a surcharge on top of the base premium for Part B coverage.
For 2023, Part B monthly premiums, including surcharges if applicable, for each covered individual are as follows:
|2021 MAGI range for single taxpayers||2021 MAGI range for married couples who file jointly||2023 Part B monthly premium|
|Less than $97,000||Less than $194,000||$164.90 ($1,978.80 annually)|
|$97,001 – $123,000||$194,001 – $246,000||$230.80 ($2,769.60 annually)|
|$123,001 – $153,000||$246,001 – $306,000||$329.70 ($3,956.40 annually)|
|$153,001 – $183,000||$306,001 – $366,000||$428.60 ($5,143.20 annually)|
|$183,001 – $500,000||$366,001 – $750,000||$527.50 ($6,330 annually)|
|Greater than $500,000||Greater than $750,000||$560.50 ($6,726 annually)|
Part B premiums, including any surcharge, are withheld from your Social Security benefit payments and are shown on the annual Form SSA-1099 sent to you by the Social Security Administration (SSA). The premium surcharge is even greater for married couples who file separate returns.
Medicare Advantage Plans
You can obtain Medicare Part B benefits through the government, or you can get benefits through a so-called Medicare Advantage plan offered by a private insurance company. These insurers contract with Medicare to provide benefits under rules established by Medicare. Medicare Advantage plans are also sometimes called Medicare Part C.
When you sign up for a Medicare Advantage plan, you still must pay the standard Part B premium, including any applicable surcharge for higher-income individuals, and you still get the standard Part B coverage. But Medicare Advantage plans provide benefits beyond what the government provides under Part B. For example, these plans may provide coverage for prescription drugs, dental care, and vision care.
You may be charged an additional monthly premium for the Medicare Advantage plan. But, depending on where you live, some plans don’t charge anything extra. The additional premium, if any, depends on the plan you select and where you live. With a Medicare Advantage plan, you are usually limited to a defined provider network, which you may view as a disadvantage.
When you have a Medicare Advantage plan, the standard Part B premiums, including any surcharge for higher-income individuals, will be withheld from your Social Security benefit payments and will be shown on the annual Form SSA-1099 sent to you by the SSA. If you pay an extra premium for your Medicare Advantage coverage, you can pay it like any other bill or arrange to have it withheld from your Social Security benefit payments.
Prescription Drug Coverage
Medicare Part D premiums are for private prescription drug coverage. Base premiums vary depending on the plan. Higher-income individuals must pay a surcharge on top of the base premium. The 2023 monthly Part D surcharges for each covered person are as follows:
|2021 MAGI range for single taxpayers||2021 MAGI range for married couples who file jointly||2023 Part D monthly surcharges|
|Less than $97,000||Less than $194,000||$0|
|$97,001 – $123,000||$194,001 – $246,000||$12.20 ($146.40 annually)|
|$123,001 – $153,000||$246,001 – $306,000||$31.50 ($378 annually)|
|$153,001 – $183,000||$306,001 – $366,000||$50.70 ($608.40 annually)|
|$183,001 – $500,000||$366,001 – $750,000||$70 ($840 annually)|
|Greater than $500,000||Greater than $750,000||$76.40 ($916.80 annually)|
You pay the base Part D premium, which depends on the private insurance company plan that you select, to the insurance company. Any surcharge will be withheld from your Social Security benefit payments and reflected on the annual Form SSA-1099 sent to you by the SSA.
Deductions for Medicare Premiums
You can combine premiums for Medicare health insurance coverages with other qualifying health care expenses for purposes of claiming the federal income tax itemized deduction for medical expenses. You can claim an itemized medical expense deduction to the extent your total qualifying expenses exceed 7.5% of your adjusted gross income (AGI). So, to get any write-off, you must:
- Clear the 7.5% of AGI hurdle, and
- Have total itemizable deductions that exceed your standard deduction.
If you’re self-employed or an S corporation shareholder-employee, you can probably claim an above-the-line deduction for health insurance premiums, including Medicare health insurance premiums. If you qualify, you don’t need to itemize to collect the tax savings.
2022 Tax Planning Considerations
Decisions made on your yet-to-be-filed 2022 federal income tax return can affect your 2022 MAGI and, in turn, affect your 2024 Medicare health insurance premiums. This issue is especially relevant if you’re self-employed or an owner of a pass-through business entity, such as a limited liability company (LLC), partnership, or S corporation. These people have more opportunities to manage MAGI when filing their taxes.
For example, self-employed people have until the due date of their 2022 tax return to make deductible contributions to their retirement accounts for the 2022 tax year. If you’re self-employed and extend your return, you’ll have until October 16, 2023, to contribute to certain retirement accounts. Your choice will impact your 2022 MAGI and, in turn, your 2024 Medicare health insurance premiums.
Likewise, owners of pass-through businesses can, along with the other owners, if applicable, make other choices that will impact their 2022 MAGI, such as choosing to maximize or minimize depreciation deductions for the entity. Those choices will impact each owner’s 2022 MAGI and, in turn, each owner’s 2024 Medicare health insurance premiums.
For More Information
Medicare health insurance premiums can quickly add up, depending on your circumstances. In addition, what you do on your yet-to-be-filed 2022 return could affect your 2024 premiums. It’s important to keep Medicare premiums in mind as you complete your 2022 tax return. Contact your tax advisor to help you optimize your overall tax situation.