In these uncertain times (especially with the pandemic), health insurance and medical coverage has become an important issue. Seniors over the age of 65 can apply for and be covered by Medicare. Many people have also added Medicare supplemental insurance plans to cover medical costs not included in Medicare such as co-pays, deductibles and other costs. With the economy the way it is, every penny of savings counts and that includes saving on taxes.
Claim as Itemized Deductions
For taxpayers who can itemize, Medicare premiums and Medicare supplemental policies premiums are treated as qualified health care costs and can be included with other out of pocket medical costs such as prescription drug costs, co-pays, long term care premiums, deductibles, eye exams, glasses, contact lens, contact lens solutions, dentist work and exams and other qualifying health care costs. To the extent these total medical costs exceed more than 10% of your adjusted gross income for the year, a person can increase their itemize deductions and save taxes.
Claim as Self-Employed health Insurance Deduction
With the new changes to the tax law in 2018 many people are unfortunately not able to itemize their deductions any more. Is there a way to still deduct the Medicare Premiums and Medicare Supplemental insurance costs? There is. Many people over the age of 65 (whether retired or not) have some amount of consulting or self-employment income. If you have self-employment income, the Medicare Premiums and Medicare supplemental insurance amounts are allowed to be deducted “above-the-line” as self-employed health insurance premiums to the extent of any self-employment earnings. Note, if you have no net self-employment income, then the medical insurance premiums get pushed to Schedule A.
If you are a Wisconsin resident, Wisconsin also allows for a subtraction from taxable income for health insurance premiums if the taxpayer either does not work and pays the premium costs out of their own pocket or if the taxpayer works but the employer does not contribute to the cost of the insurance. In many cases the taxpayer pays all the costs of the Medicare and supplemental insurance so they will be eligible for a full subtraction from Wisconsin taxable income for these premiums paid.