Taxpayers reminded of $250 Tax-Free "Donut Hole" rebates available for seniors

President Obama recently reminded senior citizens who hit the gap in Medicare prescription drug coverage, known as the "donut hole," that a $250 rebate is available in 2010. It is predicted that more than four million qualified seniors will receive these rebates by the end of the year.

Rebate

The $250 donut hole rebate is a one-time rebate. It is not made by the IRS, but by Medicare. The $250 rebates are tax-free to qualified recipients.

Medicare "donut hole"

Medicare Part D provides prescription drug benefits to qualified individuals. The benefit carries a $310 deductible. After qualified seniors have spent $310, they pay 25 percent of the cost of their prescription drugs until the total cost of all the medicines they receive in a year hits $2,830. After reaching that amount, qualified seniors pay 100 percent of the costs of their prescription drugs until the total cost of medicines reaches $6,440. The gap that Medicare does not cover is known as the doughnut hole.

The health care reform package does not immediately close the donut hole. It provides a $250 rebate in 2010. Beginning in 2011, qualified seniors affected by the Medicare gap will receive a 50 percent discount on prescription drugs. Additionally, the Medicare share of costs will increase so that the donut hole will close in 2020.