The Tax Code allows an above-the-line deduction for health insurance premiums paid by self-employed individuals on policies that cover themselves, their spouse and dependents.  Late in the tax season this year the IRS ruled that Medicare premiums paid (or deducted from social security benefits) are considered premiums that qualify for this deduction.  Prior law allowed Medicare premiums only as a medical expense – an itemized deduction subject to a 7.5% of adjusted gross income threshold.
This change in the tax treatment of your Medicare premiums means that you can amend your prior tax returns and claim the above-the-line the deduction.  Amended federal income tax returns can be filed within three (3) years of the filing date of the original return.  The last day to file your 2007 amended federal income tax return may have passed.   Call our office and let us find out for you which years you can amend.

All Medicare premiums that you pay or have deducted from you social security benefits qualify for the deduction.  This includes Medicare Part A- Hospital Insurance, Medicare Part B – Medical Insurance, Medicare Part C – Medicare Advantage Plans, and Medicare Part D – Prescription Drug Coverage.  Premiums paid on Medigap policies will also qualify for the deduction.

Because California follows the federal rules for deduction of the self-employed health insurance premiums, you can amend your California individual income tax returns as well.  For 2010 only, the self-employed health insurance deduction was allowed against self-employment tax as well as income tax.  That means an even bigger refund for 2011.