Smart Tax Moves Every Medicare Beneficiary Should Know

Tax season doesn’t have to mean higher costs for your healthcare.

According to the IRS, fewer than 30% of Medicare beneficiaries claim all the medical expense deductions they’re entitled to, leaving thousands of dollars on the table each year. 

If you’re on Medicare, understanding how your coverage intersects with tax law can save you significant money and prevent surprise premium increases.

Maximize Your Medical Expense Deductions

Medicare beneficiaries can deduct medical expenses exceeding 7.5% of their adjusted gross income (AGI).

This includes your Medicare Part B and Part D premiums, Medicare supplement (Medigap) insurance, prescription costs, dental and vision expenses, and out-of-pocket medical bills. 

Many retirees easily clear this threshold but fail to claim it.

Action step: Gather all receipts for Medicare premiums, supplement insurance payments, prescription costs, and medical bills paid in 2025. 

If your total medical expenses exceed 7.5% of your AGI, you can deduct the amount over that threshold.

Avoid the IRMAA Trap with Strategic Income Planning

IRMAA (Income-Related Monthly Adjustment Amount) surcharges hit Medicare beneficiaries whose income exceeds certain thresholds.

For 2026, single filers with modified adjusted gross income (MAGI) above $109,000 and joint filers above $218,000 pay higher Part B and Part D premiums. 

These surcharges are based on your tax return from two years prior, meaning your 2024 income determines your 2026 Medicare premiums.

Here’s what many miss: a one-time spike in income can trigger IRMAA surcharges. This might happen from a large IRA withdrawal, selling property, or taking a pension lump sum.

Strategic move: If you need to take large retirement account distributions, consider spreading them across multiple years to stay below IRMAA thresholds. 

For example, instead of withdrawing $150,000 in one year, take $75,000 over two years if it keeps you under the limit.

Master Retirement Account Withdrawals

Timing your retirement account withdrawals can make or break your Medicare premium costs.

Traditional IRA and 401(k) distributions count as taxable income that affects your IRMAA calculation.

 Roth IRA withdrawals, however, don’t count toward MAGI and won’t trigger higher Medicare premiums.

Smart strategy: If you have both traditional and Roth retirement accounts, prioritize Roth withdrawals when you’re close to an IRMAA threshold. 

This gives you the income you need without pushing you into a higher Medicare premium bracket.

Required Minimum Distributions (RMDs) starting at age 73 can also push you into IRMAA territory. 

Consider Qualified Charitable Distributions (QCDs), which allow you to donate up to $108,000 in 2025 directly from your IRA to charity without it counting as taxable income.

Navigate the HSA Transition Carefully

If you had a Health Savings Account (HSA) while working, understand the Medicare enrollment rules.

You cannot contribute to an HSA once you’re enrolled in any part of Medicare, including Part A. Many people don’t realize that Medicare Part A enrollment is retroactive up to six months from when you apply, which can create tax penalties if you contributed to an HSA during that period.

Important: Stop HSA contributions at least six months before enrolling in Medicare to avoid penalties. 

However, you can still use existing HSA funds tax-free for qualified medical expenses, including Medicare premiums for Part B, Part D, and Medicare Advantage plans (but not for Medicare supplement insurance premiums).

File a Life-Changing Event Appeal

If your income dropped significantly due to retirement, the death of a spouse, divorce, or loss of income-producing property, you don’t have to wait two years for your Medicare premiums to adjust.

Social Security allows you to appeal your IRMAA surcharge by filing Form SSA-44 and providing documentation of your life-changing event. 

Approved appeals can reduce your premiums for the current year.

Time-sensitive action: File your appeal within 60 days of receiving your IRMAA notice, though Social Security may accept late appeals with good cause. 

Documentation might include pay stubs showing retirement, death certificates, divorce decrees, or property sale records.

Use Tax-Efficient Charitable Giving

Charitable giving can reduce your taxable income while supporting causes you care about.

Qualified Charitable Distributions (QCDs) from your IRA directly to charity satisfy your RMD without increasing your MAGI. 

This keeps your Medicare premiums lower while reducing your tax bill and supporting your favorite organizations.

Donating appreciated securities instead of cash provides even more tax benefits. 

You avoid capital gains tax on the appreciation and still get a charitable deduction for the full fair market value.

Example: Instead of selling $10,000 in appreciated stock (triggering capital gains tax) and donating cash, donate the stock directly to charity. You avoid the capital gains tax entirely and get the full $10,000 deduction.

Understand How Social Security Affects Your Return

Up to 85% of Social Security benefits become taxable when combined income exceeds certain thresholds.

Combined income includes your AGI, tax-exempt interest, and half your Social Security benefits. 

For single filers, thresholds are $25,000 and $34,000; for joint filers, $32,000 and $44,000.

Planning opportunity: Because Medicare premium surcharges and Social Security taxation both depend on income, strategies that reduce MAGI provide double benefits—lower taxes and lower Medicare premiums.

Check out our latest blog posts:

Medicare Premiums, Deductibles, Co-Pays, and Limits for 2025

What Does Medicare Parts A and B Cover? A Complete Guide for Beneficiaries

Here’s to your health and wealth,

Wiley P. Long, III
President – MediGap Advisors

Comfort at Life’s End: A Medicare Hospice Guide