Medicare health insurance premiums can be a significant expense, particularly for upper-income individuals and married couples who both pay premiums. Here’s a breakdown of how Medicare premiums work and how taxes factor into the equation.
Premiums for Part B Coverage
Medicare Part B, commonly known as medical insurance, primarily covers doctor visits and outpatient services. Eligible individuals, generally those 65 or older, must pay monthly premiums for this benefit. Medicare is also available earlier to some individuals with disabilities, end-stage renal disease, or ALS.
The monthly premium for Medicare Part B is determined by your modified adjusted gross income (MAGI), as reported on your Form 1040 two years prior. MAGI is your adjusted gross income (AGI) plus any tax-exempt interest income.
Base Monthly Premium for 2025: Most individuals will pay $185 per month per covered person.
Surcharge for Higher-Income Individuals: If you filed as an unmarried individual for 2023 and reported MAGI above $106,000, or filed jointly and reported MAGI above $212,000, you’ll pay a surcharge in 2025. The exact amounts, including surcharges, can be found online.
Part B premiums, including surcharges, are typically withheld from Social Security benefit payments and reported on Form SSA-1099, which is sent annually by the Social Security Administration (SSA).
Premiums for Part D Drug Coverage
Medicare Part D provides private prescription drug coverage, and base premiums vary depending on the plan you choose. Higher-income individuals also pay a surcharge in addition to the base premium.
Surcharge Thresholds for 2025: The same income thresholds apply as for Part B. If your 2023 MAGI exceeded $106,000 as an individual filer or $212,000 as a joint filer, you’ll pay a surcharge in 2025.
You’ll pay the base Part D premium directly to your insurance provider, while any surcharges are withheld from your Social Security benefits and reported on Form SSA-1099.
Deducting Medicare Premiums
You may be able to include Medicare premiums in your itemized medical expense deduction. The deduction is available for total qualifying medical expenses that exceed 7.5% of your AGI. This deduction can help offset the financial burden of healthcare costs for some taxpayers.
Impact of 2024 Tax Return on 2026 Medicare Premiums
Decisions made on your 2024 Form 1040 can influence your 2024 MAGI, which in turn will determine your 2026 Medicare premiums. This is particularly important if you are self-employed or own a pass-through business entity such as an LLC, partnership, or S corporation. You may have options to:
Adjust deductible contributions to a self-employed retirement plan.
Maximize or minimize depreciation deductions for business assets.
These choices can help you strategically manage your MAGI and potentially reduce future Medicare premiums.
Optimize Your Situation
Medicare premiums can add up, especially for higher-income individuals. Taking steps now to manage your income and deductions can have a meaningful impact on your future premiums. If you need guidance, we’re here to help you make informed decisions to optimize your overall financial situation.