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Are Health Insurance Premiums Tax Deductible When You Retire?


Health insurance premiums can be tax deductible when you retire, but it depends on several factors such as your age, the type of health insurance plan that you have and whether you are self-employed or not. Even medicare premiums can be tax deductible if you qualify, so it’s just as important to have a tax strategy for retirement, as it is while you’re working. If you need help understanding how you should prepare for your taxes in retirement, consider talking to a financial advisor.

When Are Health Insurance Premiums Tax Deductible?

Health insurance premiums are an important part of financial planning, especially for retirees who often face higher medical expenses. And tax-deductible health insurance premiums can allow them to lower their tax liability.

To qualify for a health insurance premium deduction, you must comply with certain requirements from the Internal Revenue Service (IRS).

Primarily, you will have to itemize your deductions and total unreimbursed medical expenses, which include health insurance premiums, and must exceed 7.5% of your adjusted gross income (AGI). This deduction could encompass premiums paid for various types of health plans such as marketplace plans, some employer-sponsored plans (though this is not common), and Medicare. Taxpayers must maintain records of all health-related expenses to substantiate the medical expenses claimed on their taxes.

For seniors and retirees, there are additional considerations to keep in mind regarding the deductibility of health insurance premiums. Medicare premiums, for example, are often deductible under the medical expenses category.

Can You Deduct Medicare Premiums?

A father researching with his daughter which health insurance premiums are tax deductible.

Retirees who wish to deduct their Medicare premiums must choose to itemize their deductions on IRS Form 1040. The premiums paid for all parts of Medicare, including Medigap, are generally considered to be deductible medical expenses (though some restrictions may apply).

For these and other qualifying medical expenses to be deductible, they must exceed 7.5% of the individual’s adjusted gross income and must have been paid by the taxpayer.

IRS Publication 502 offers comprehensive guidelines on how these deductions can be applied.

What Medical Costs Are Tax Deductible in Retirement?

According to the IRS, deductible medical expenses include payments for legal medical services rendered by physicians, surgeons, dentists and other medical practitioners. These also encompass the costs for certain equipment, supplies and diagnostic devices needed for these purposes.

Necessary medical equipment can include items such as wheelchairs, hearing aids, crutches and eyeglasses, as well as costs associated with their purchase and maintenance.

Common Tax Deductions for Retirees

Strategic tax planning plays a key factor in the planning of your retirement nest egg. Here are four common tax deductions that you may qualify for in retirement.

  • Standard deduction: The standard deduction offers a simplified way to reduce taxable income and is the normal deduction you can qualify for just by filing your taxes. Seniors over age 65 are entitled to an additional standard deduction.
  • Charitable contributions: The IRS offers specific deductions for charitable giving, which can be particularly advantageous for retirees looking to reduce their taxable income and who itemize deductions.
  • Selling a home: The IRS provides a capital gains exclusion for retirees who sell their homes, allowing single filers to exclude up to $250,000 of capital gains, and married couples filing jointly to exclude up to $500,000 from income. To qualify for this tax benefit, the taxpayer must have lived primarily in that home for at least two of the past five years.
  • Retirement plan contributions: Even during retirement, individuals can contribute to IRAs and other retirement accounts, which can offer tax advantages, such as tax-deductible contributions as long as they have earned income from employment.

Bottom Line

A senior client meeting with a financial advisor to discuss tax-deductible health insurance premiums.

Tax deductions for health insurance premiums and other medical expenses can help retirees optimize their financial resources during their non-working years. The ability to deduct health insurance premiums, such as those for Medicare, alongside other qualifying medical expenses that exceed 7.5% of adjusted gross income, can provide significant tax relief.

Tips for Retirement Planning

  • A financial advisor can help you create a retirement plan for your needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • You can also use a retirement calculator to help you see if you’re saving enough for the retirement you’re planning for.

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