Medicare Rules and Tax Reform
Editor’s Note: This article was originally published on April 09, 2018.
While the recently passed Tax Cuts and Jobs Act (TCJA) did repeal the individual health coverage mandate under the Affordable Care Act, it left in place the 0.9% Additional Medicare tax on high-income individuals. The takeaway here is that there were no changes to the tax treatment of Medicare benefits or rules due to tax reform.
While there are no changes to Medicare rules because of tax form, understanding how Medicare works can be helpful in understanding your overall financial picture. To learn more about Medicare and the tax-related considerations of Medicare, read on.
What is Medicare?
Medicare is a form government provided health insurance for individuals 65 or older, or certain disabled individuals under the age 65. Medicare is funded by a payroll tax, premiums and surtaxes from beneficiaries, and general revenue. It provides health insurance for Americans aged 65 and older who have worked and paid into the system through the payroll tax. It also provides health insurance to younger people with some disability status as determined by the Social Security Administration.
What are the various parts of Medicare?
Medicare Part A (Hospital Insurance)
Medicare Part A helps cover: inpatient care in hospitals; skilled nursing facility care; hospice care; and home health care.
-Skilled nursing facility care
-Home health care
Medicare Part B (Medical Insurance)
Medicare Part B helps cover: services from doctors and other health care providers; outpatient care; home health care; durable medical equipment; and some preventive services. Part B is optional and may be deferred if the beneficiary or their spouse is still working and has health coverage through their employer.
Medicare Part C (Medicare Advantage Plans)
Includes all benefits and services covered under Part A and Part B, and usually includes Medicare prescription drug coverage (Part D) as part of the plan. Part C is ran by Medicare-approved private insurance companies. This coverage may include extra benefits and services for an extra cost.
Medicare Part D (Prescription Drug Coverage)
Helps cover the cost of prescription drugs, and is ran by Medicare-approved private insurance companies. Part D may help lower your prescription drug costs and help protect against higher costs in the future.
Are Medicare Benefits Taxable?
Basic Medicare benefits under part A (hospital benefits) are not taxable. Supplementary Medicare benefits under part B (coverage of doctors’ services and other items) are not taxable unless the premiums were previously deducted.
That being said, social security benefits used to purchase Medicare Part B remain taxable. Part B premiums normally are not paid directly by the taxpayer but are withheld from his or her social security benefits.
Are Medicare Premiums Deductible?
Medicare Parts B, C, and D premiums paid by taxpayers age 65 and older are deductible. However, Part A premiums paid by taxpayers covered by social security are not deductible. However, Part A premiums voluntarily paid by a taxpayer age 65 or older not otherwise entitled to social security benefits are deductible.
Medicare’s Effect on HSA Contributions
Once an individual turns 65 and enrolls in Medicare they can no longer establish a health savings account, or contribute to one.
Upcoming Medicare Changes
Until now, the Medicare claim number displayed on the enrollee’s Medicare card was his or her Social Security Number. That is about to change. To help prevent identity theft, the Centers for Medicare and Medicaid Services (CMS) will soon begin mailing new Medicare cards with new identifying numbers.
While Affordable Care Act (ACA) provisions have changed, you can still be charged an ACA penalty for 2018. Find out what happens if you don’t pay a penalty.
If you don't have health insurance, learn more about the Affordable Care Act requirements, including tax filing requirements, at H&R Block.
Afraid of owing a penalty for not having health insurance? See if you qualify for the hardship exemption with the experts at H&R Block.
Learn more about President Trump’s recent Executive Order, if an Affordable Care Act change is in the cards and the potential tax impact at H&R Block.