The Internal Revenue Service (IRS) is giving self employed Medicare beneficiaries a welcomed tax break surprise for 2010. Due to a mysterious change in a long-standing IRS rule, these beneficiaries can now deduct their Medicare Part B premiums on their taxes.
Previously, Medicare Part B premiums have not been allowed to be claimed as a health insurance tax deduction. This has been an exception to the general rule allowing self employed people to deduct their health insurance premiums under certain conditions. One such condition is that the health insurance is under the name of the business, which is usually the name of the person.
While this change is good news, it also has many people wondering why and how this change came about. No new tax law was passed, and no official public announcement from the IRS was made. Current tax forms (last updated in 2009) don’t yet reflect this change.
IRS spokesman Jesse Weller announced that taxpayers should ignore the statement in Publication 535 saying “Medicare Part B premiums are not considered medical insurance premiums for purposes of the self-employed health insurance deduction.” Instead, beneficiaries should go ahead and use their Medicare Part B premiums to figure the self-employed health insurance deduction on line 29 of the 2010 Form 1040. Publication 535 is being updated and will be posted to IRS.gov soon.
TurboTax has also announced that it is following the instructions for Form 1040, and customers who use its software will get the deduction if they qualify.
While it remains a mystery as to how exactly this change came about, the savings are significant. The standard Medicare Part B premium is roughly $1,200 a year, and high-income people pay even more. Self-employed seniors who are paying for Medicare Part B now have the opportunity to save hundreds of dollars on their 2010 taxes.
For more information on this change and another change on how health insurance premiums can also reduce the self-employment tax, see a recent news article in the San Francisco Chronicle (2.17.11).