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Medicare Premiums: Beware of Adjustments When You Have a High Income Tax Year

The law requires an adjustment to your monthly Medicare Part B (medical insurance) and Medicare prescription drug coverage premiums when your income exceeds certain thresholds.

If You Have a Higher Income

If you have a higher income, you’ll pay an additional premium amount for Medicare Part B and Medicare prescription drug coverage.  The additional premium is referred to as the income-related monthly adjustment amount.

  • Medicare Part B helps pay for doctors’ services and outpatient care. It also covers other medical services, such as physical and occupational therapy, and some health care.  For most beneficiaries, the government pays a substantial portion – about 75 percent – of the Part B premium and the beneficiary pays the remaining 25 percent.

If you are a higher-income beneficiary, you’ll pay a larger percentage of the total cost of Part B based on the income you normally report to the IRS.  You’ll pay monthly Part B premiums equal to 35, 50, 65, 80, or 85 percent of the total cost, depending on what you report to the IRS.

  • Medicare prescription drug coverage helps pay for your prescription drugs. For most beneficiaries, the government pays a major portion of the total cost for this coverage, and the beneficiary pays the rest.  Prescription drug costs vary depending on the plan.

If you are a higher-income beneficiary with Medicare prescription drug coverage, you will pay monthly premiums plus an additional amount, which is based on what you report to the IRS.  Because individual plan premiums vary, the law specifies that the amount is determined using a base premium.  The additional amount you pay is tied to the base beneficiary premium, not your own premium amount.  If you are a higher-income beneficiary, this amount is deducted from your monthly Social Security payments regardless of how you usually pay your monthly prescription plan premiums.  If the amount is greater than your monthly payment from Social Security, or you don’t get monthly payments, you will get a separate bill from another federal agency, such as the Centers for Medicare & Medicaid Services or the Railroad Retirement Board.

How Social Security Determines You Have a Higher Premium

Social Security uses the most recent federal tax return the IRS provides to them.  If you must pay higher premiums, SSA uses a sliding scale to calculate the adjustments, based on your modified adjusted gross income (MAGI).  Your MAGI is your total adjusted gross income and tax-exempt interest income.

If you must pay higher premiums, the SSA will send you a letter with your premium amount(s) and the reason for the determination.  If you have both Medicare Part B and Medicare prescription drug coverage, you will pay the higher premiums for each.  If you on have one – Medicare Part B or Medicare prescription drug coverage – you will pay an income-related monthly adjustment amount only on the benefit you have.  If you decide to enroll in the other program later in the same year, and you already are paying an income-related monthly adjustment amount, the SSA will apply an adjustment automatically to the other program when you enroll.

Your Tax Return

To determine your 2023 income-related monthly adjustment amounts, the SSA uses your most recent federal tax return that the IRS provides.  Generally, this information is from a tax return filed for tax year 2021.

If your yearly income in 2021 was:

File single filers
File joint filers
Part B monthly premium amount
Prescription drug coverage
$97,000 or less
$194,000 or less
standard premium = $164.90
your plan premium
$97,001 to $123,000
$194,001 to $246,000
standard premium + $65.90
your plan premium + $12.20
$123,001 to $153,000
$246,001 to $306,000
standard premium + $164.80
your plan premium + $12.20
$153,001 to $183,000
$306,001 to $366,000
standard premium + $263.70
your plan premium + $50.70
$183,001 to $499,999
$366,001 to $749,999
standard premium + $362.60
your plan premium + $70.00
$500,000 or above
$750,000 or above
standard premium + $395.60
your plan premium + $76.40

If Your Income Has Gone Down

If your income has gone down due to any of the following situations, and the change makes a difference in the income level the SSA considers, contact the SSA to explain that you have new information and may need a new decision about your income-related monthly adjustment amount:

  • You married, divorced, or became widowed.
  • Your or your spouse stopped working or reduced your work hours.
  • You or your spouse lost income-producing property because of a disaster or other event beyond your control.
  • Your or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan.
  • Your or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

If any of the above applies to you, provide the SSA documentation verifying the event and the reduction in your income.  The documentation you provide should relate to the event and may include a death certificate, a letter from your employer about your retirement, or something similar.  If you filed a federal income tax return for the year in question, you need to show the SSA a signed copy of the return.  Use Form Medicare Income-Related Monthly Adjustment Amount – Life Changing Event to report a major life-changing event.  If your income has gone down, you may also use Form SSA-44 to request a reduction in your income-related monthly adjustment amount.

If You Disagree With the SSA Decision

If you disagree with the decision made about your income-related monthly adjustment amounts, you have the right to appeal.  The fastest and easiest way to file an appeal of your decision is online.  You can file online and provide documents electronically to support your appeal. 

You may also request an appeal in writing by completing a Request for Reconsideration (Form SSA-561-U2), or you may contact your local Social Security office to file your appeal.

Please contact your Wegner CPAs advisor if you have questions on Medicare Premiums for Higher-Income Beneficiaries.

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