Rev. Rul. 79-175

ISSUE

May a taxpayer who is 65 years of age or older and not entitled to Social Security benefits deduct, under section 213 of the Internal Revenue Code of 1954, the amount of premiums the taxpayer voluntarily pays in order to obtain the benefits available under Part A of title XVIII of the Social Security Act, sections 1811-1818, 42 U.S.C. sections 1395c-1395i-2 (1970), relating to hospital insurance benefits for the aged and disabled (Medicare Part A), commonly called basic medicare?

FACTS

The description of the Medicare Part A program, Hospital Insurance Benefits for the Aged and Disabled, is set forth in section 1811 of the Act, 42 U.S.C. section 1395c, which states:

The insurance program for which entitlement is established by section 426 of this title provides basic protection against the costs of hospital and related posthospital services in accordance with this part for (1) individuals who are age 65 or over and are entitled to retirement benefits under subchapter II of this chapter or under the railroad retirement system and (2) individuals under age 65 who have been entitled for not less than 24 consecutive months to benefits under subchapter II of this chapter or under the railroad retirement system on the basis of a disability.

Initially, only those persons covered by the Social Security Act or the Railroad Retirement Act were entitled to Medicare Part A coverage, and as to those persons enrollment in the program was and still is mandatory. Medicare Part A coverage is financed, in major part, by separate payroll taxes paid by employers, employees and self-employed persons.

Section 1818 of the Act, 42 U.S.C. section 1395i-2, now permits, to a limited extent, voluntary enrollment for Medicare Part A coverage for those individuals not otherwise eligible. This section provides, in part, that every individual who (1) has attained the age of 65, (2) is enrolled under part B of Medicare, (3) is a resident of the United States, and is either (A) a citizen or (B) an alien lawfully admitted for permanent residence who has resided in the United States continuously during the five years immediately preceding the month in which such individual applies for enrollment under this section, and (4) is not otherwise entitled to benefits under this part, shall be eligible to enroll in the insurance program established by this part.

In addition, section 1818 of the Act provides the formula for computing the monthly premiums to be paid by each individual who voluntarily enrolls in the Medicare Part A program.

Section 1862 of Part B of title XVIII of the Act, 42 U.S.C. section 1395y, provides, in part, that notwithstanding any other provisions of Title XVIII, no payment may be made under Part A or Part B of Title XVIII for any expenses incurred for items or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

LAW AND ANALYSIS

Section 213(a)(2) of the Code provides that a deduction shall be allowed for an amount (not in excess of $150) equal to one-half of the expenses paid during the taxable year for insurance that is medical care for the taxpayer, the taxpayer's spouse, and dependents.

Section 1.213-1(e)(4) of the Income Tax Regulations provides, in part, that taxes imposed by any governmental unit are not amounts paid for medical insurance.

Section 275(a) of the Code provides that no deduction shall be allowed for federal income taxes, including the tax imposed by section 3101 (relating to the tax on employees under the Federal Insurance Contribution Act).

Rev. Rul. 66-216, 1966-2 C.B. 100, concerns, in part, the deductibility, under section 213 of the Code, of the taxes imposed for hospital insurance (Medicare Part A coverage) on self-employment income under section 1401(b) and on wages received by an employee with respect to employment under section 3101(b). Rev. Rul. 66-216 states that in connection with the legislation that was enacted as the Social Security Amendments of 1965, the committee reports (H.R. Rep. No. 213, 89th Cong., 1st Sess., 1965-2 C.B. 733, 745, and S. Rep. No. 404, part 1, 89th Cong., 1st Sess., 1965-2 C.B. 758, 764) contain the following language with reference to section 213(e) as amended:

Taxes paid under section 1401 (relating to tax on self-employment income) or under section 3101 (relating to tax on income of employees) of the Internal Revenue Code do not constitute amounts paid for insurance.

Thus, Rev. Rul. 66-216 holds, in part, that amounts paid as self-employment tax under section 1401(b) of the Code and as employee tax under section 3101(b) do not qualify as amounts paid for insurance for the purpose of the medical expense deduction provided by section 213 and may not be taken as a medical expense deduction on returns filed by individuals for any taxable year.

Premiums voluntarily paid by a taxpayer in order to obtain Medicare Part A coverage are distinguishable from the above-mentioned payments described in Rev. Rul. 66-216. These voluntary payments are neither self-employment taxes within the meaning of section 1401(b) of the Code, nor employee taxes within the meaning of section 3101(b). They are amounts paid for insurance solely at the option of the taxayer as opposed to mandatory contributions in the form of taxes imposed by a governmental unit. They are thus similar to premiums paid under Part B of Title XVIII of the Social Security Act (relating to supplementary medical insurance benefits for the aged and disabled), the deduction of which as a medical expense is specifically allowed by section 213(e)(1)(C) of the Code. See also section 1.213-1(e)(4)(i)(a) of the regulations and Rev. Rul. 66-216.

HOLDING

The premiums paid by a taxpayer who is 65 years of age or older and not entitled to Social Security benefits, in order to obtain coverage under Part A of Title XVIII of the Social Security Act qualify as amounts paid for medical insurance within the meaning of section 213 of the Code and may be taken as a medical expense deduction subject to the limitations of section 213.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 66-216 is distinguished.