How does my income affect my medicare premium?

If you are retired and age 65 or older, you are likely enrolled in Medicare, the Federal health insurance program that provides hospital (“Part A”), medical (“Part B”), and prescription drug (“Part D”) coverages. While you typically do not pay Part A premiums, you do pay Medicare Part B and D premiums. Often, you pay these via a direct deduction from your Social Security benefits. In addition, premiums are adjusted annually for inflation.

HOW ARE MY PREMIUMS DETERMINED?

While there are base premiums for Medicare coverages (for 2022, Part B is $170.10/month; Part D premiums vary), you may pay more based on the income reported on your tax return. See the table below as an example (the higher your income, the higher the amount). The Social Security Administration (SSA) calls these additional amounts your income-related monthly adjustment amount (IRMAA) and bases them off of your Modified Adjusted Gross Income (MAGI) on your most recent federal income tax return.

Your IRMAA is determined annually. This means if you are subject to IRMAA in 2022, you may not be subject to IRMAA in 2023 if your income has decreased, bringing your MAGI below the thresholds. Likewise, if you had a qualifying “life-changing event” and your income decreased, you should contact the Social Security Administration.

WHAT SHOULD I CONSIDER WHEN IT COMES TO MY IRMAA?

When evaluating your overall financial situation, including your tax strategy and investment-related transactions, consider the potential impact your MAGI may have on your IRMAA to avoid unexpected surprises. Our team can assist you in understanding your MAGI, how your investments affect your MAGI, and options for lowering your MAGI.

Social Security and its related programs are very complex. We highly recommend contacting the SSA or visiting your local office to address your individual situation. We are also able to address any questions you have.

Additional information about Medicare premiums and IRMAA can be found in the following links:

Medicare.gov – Your Medicare Costs

Social Security Administration – Rules for Higher Income Beneficiaries

Author: Marc Verdi, CPA/PFS, CFP® | Director of Tax & Financial Planning
Written: December 15, 2021