Medicare premiums can be influenced by income through a mechanism known as Income-Related Monthly Adjustment Amounts (IRMAA). Medicare is a federal health insurance program primarily for individuals aged 65 and older, as well as certain younger individuals with disabilities. While most people don’t pay a premium for Medicare Part A (hospital insurance), premiums are generally required for Medicare Part B (medical insurance) and Part D (prescription drug coverage). There is a two year look back to determine Medicare premiums.
Here’s how income can affect Medicare premiums:
Medicare Part B Premiums: The standard Medicare Part B premium is set by the government, but individuals with higher incomes may be subject to additional income-related monthly adjustment amounts (IRMAA) on top of the standard premium. IRMAA affects individuals with Modified Adjusted Gross Incomes (MAGI) above certain thresholds. MAGI includes your adjusted gross income plus tax-exempt interest income.
As of August 2023, the income thresholds for IRMAA were as follows for individuals filing taxes individually:
- Income Below $97,000 (or $194,000 for joint filers): Pays the standard Part B premium ($164.90) .
- Income Between $97,000 and $123,000 (or $194,000 and $246,000 for joint filers): Pays the standard premium plus an additional amount ($230.80).
- Income Between $123,000 and $153,000 (or $246,000 and $306,000 for joint filers): Pays the standard premium plus a higher additional amount (329.70).
- Income Between $153,000 and $183,000 (or $306,000 and $366,000 for joint filers): Pays the standard premium plus an even higher additional amount (428.60).
- Income Between $183,000 and $500,000 (or $366,000 and $750,000 for joint filers): Pays the standard premium plus an even higher additional amount (527.50).
- Income of $500,000 or more (or $750,00 or more for joint filers): Pays the standard premium plus the highest additional amount (560.50).
For joint filers, the IRMAA applies individually to each Medicare participant. These income-related adjustments are reviewed annually and are subject to change based on government regulations.
Medicare Part D Premiums: Medicare Part D plans (prescription drug coverage) also have premiums that can be influenced by income. Like with Part B, higher-income beneficiaries may pay higher Part D premiums based on their MAGI. These income-related adjustments can vary based on the specific Part D plan.
Below are two hypothetical IRMAA cases showing how the 2023 IRMAA brackets affect Medicare Part B premiums.
Jenny (Individual Taxpayer)
- MAGI was $75,000 in 2021
- She will not be subject to IRMAA in 2023 because her MAGI is below the $97,000 threshold
- Her 2023 Medicare Part B premium will be $164.90 per month (standard premium)
- No surcharge on Medicare Part D
Sam and Sally (Married Filing Jointly)
- MAGI was $195,000 in 2021
- Sam and Sally will both be subject to IRMAA in 2023 because their MAGI is above the $194,000 threshold
- Their individual 2023 Medicare Part B premiums will be $230.80 per month (standard premium $164.90 + IRMAA surcharge 65.90)
- Their 2023 Medicare Part D will have a surcharge of $12.20 per month
It’s important to note that Medicare premiums and income thresholds may change over time due to legislative changes and updates. For the most current information, it’s recommended to refer to the official Medicare website or consult with a qualified Medicare advisor. Understanding the complexities of Medicare and its premium structure can be challenging. If you’re nearing Medicare eligibility or already enrolled, seeking guidance from your financial advisor or CPA can help avoid or reduce IRMAA.
About the author: Ashley Dickson is a co-founder and financial planner at Next Bloom Wealth LLC. She serves clients in the Kansas City area with a focus on holistic and comprehensive financial planning.
This article is intended for educational purposes only. If you’re considering this strategy, contact your financial, tax or legal advisor.