Medicare Premiums Deductible as SEHI

[FEDUKE404]

That is the question...

I'm just thinking about the implications of all this for a taxpayer who has deductible medical expenses over and above the Medicare premium. If the Medicare premiums are left on the Schedule A, the only effect is that they forego the reduction in AGI and thus the 7.5% haircut increases by the amount of the SEHI premiums. Since Medicare premiums average about $1,500/year per person, for a joint return this means that the AGI reduction yields an increase of about $225 in medical expenses on the Schedule A ($3,000 x 7.5%). At a top marginal Fed & state tax rate of 33%, this would mean a savings of $70 at the most ($225 x 33%).

If my math is right, then a taxpayer who otherwise has deductible medical expenses, it might be worth foregoing the $70 savings to avoid the hassle of having the deduction questioned. This is especially true since there seems to be so much uncertainty over the deduction. For a single taxpayer the $35 savings certainly wouldn't be worth the potential hassle. Amending would be out of the question IMO.

If the taxpayer has other AGI-related adjustments which might hinge on this deduction, for a non-itemizer, or for an itemizer who doesn't have totyal deductible medical expenses in excess of the haircut, the answer might be different. But I think I'd look at total medical expenses before I even bothered going through this exercise for most taxpayers.

You make a valid point. Without doing any number-crunching, a person who is already itemizing and already above the 7.5% (soon to be 10%?) medical shearing would likely see minimal benefit by going the SEHI adjustment to income route. For folks in that position, the risk/reward ratio might be even narrower for those who are....ahem....bending the rules to take the SEHI adjustment in the first place.

The picture becomes much clearer when the person neither itemizes via Sch A, nor does not have sufficient medical expenses above the floor amount.

One issue might come into play: What about things that are related to AGI (or even MAGI) limitations? There are many, and for those reasons alone lowering the AGI/MAGI might prove to be of tax benefits separate from anything associated with Sch A and/or itemized medical deductions. It's too late for my brain to ponder those scenarios....but they could very well exist.

FE

[JohnH]

I tested this today on my own return. We have deductible medical expenses well over the 7.5% haircut so we get to use the Medicare SEHI either way. Moving the Medicare premium of roughly $1,200 to the front of the return as SEHI made a grand total of $32 savings in the tax liability on Fed and state of NC combined. I'm leaving it on the Schedule A - one less item to raise questions.