Medicare Advantage Plan premiums may be tax-deductible under certain circumstances, according to the Internal Revenue Service. Still, the number of people qualifying to take the deduction is nominal since taking it requires the taxpayer to itemize deductions on Form 1040. Most people don’t itemize; an estimated 90% of filers opt for the standard deduction instead, notes the Tax Policy Center.
Claiming a Deduction
The standard deduction for a single filer in 2019 was $12,200; for married couples, it was $24,400. This amount is subtracted from filers’ taxable income, reducing the amount of tax owed. Most taxpayers don’t have a sufficient number of qualifying deductions to forgo the standard deduction, even with Medicare Advantage plan costs factored in.
For instance, a plan holder who pays $100 monthly ($1,200 annually) for a Medicare Advantage plan and has no other deductions to claim is best served taking the standard deduction and thereby reducing their taxable income. Nonetheless, for some taxpayers who have other expenses to itemize, the inclusion of the Medicare Advantage plan costs as a deduction can be lucrative.
If taxpayers itemize, an additional hurdle needs to be overcome before claiming a deduction for Medicare Advantage premiums. Taxpayers may only deduct medical expenses in excess of 7.5% of their adjusted gross income. If the taxpayer’s total medical expenses, including any premiums paid for a Medicare Advantage plan, don’t exceed that 7.5% threshold, then the premiums are not deductible. For example, if a taxpayer’s AGI is $100,000, then deductible medical expenses, including the costs of the Medicare Advantage plan, must be $7,500 or more for the purpose of itemization.
Medicare Advantage plan holders should discuss their particular situation with their tax professional or financial planner to determine whether or not plan premiums are tax deductible based on their specific financial state.