How is Income Linked to Medicare Premiums in 2023?

Medicare Part B and Part D premium costs are not one-size-fits-all. Income level plays a significant role in determining how much an individual beneficiary will pay for Medicare coverage monthly. Medicare uses modified adjusted gross income (MAGI) to calculate income-related premium amounts each year.

Below we'll examine how your income affects your Medicare Part B and prescription drug coverage plan premium costs. Understanding these income limits or adjustments can help you estimate and plan for Medicare expenses.

Medicare Part B Premium Versus Your Income-Related Premium in 2023

Medicare Part B has a standard monthly premium that all enrollees pay as their base rate. For 2022 and 2023, this amount is $ 164.90 per month.

However, beneficiaries with higher incomes pay an income-related monthly adjustment amount (IRMAA) on top of the standard premium. So your total Medicare Part B premium is:

Base Premium + Income-Related Premium = Your Total Monthly Part B Premium

Part D prescription drug plans also have a base premium that may be adjusted up for higher earners.

How Medicare Calculates Your Income-Related Premium

Medicare determines your income-related premium using your modified adjusted gross income (MAGI) from your federal tax return from 2 years prior.

For example, Medicare calculates your 2023 premium based on your 2021 MAGI. Income sources included in MAGI are:

• Wages, salaries, tips

• Dividends, interest

• Retirement income

• Capital gains

Social Security benefits are not included in determining Medicare premium adjustments.

As income rises above $97,000 for an individual, so does the percentage of income paid for Part B and Part D.

Income Brackets for Calculating Medicare Premiums

Here are the income brackets used to calculate income-related Medicare premiums for 2023:

These brackets are updated annually and apply to each Medicare beneficiary individually, even if married filing jointly.

Part D income-related premiums work on a sliding scale with similar income brackets.

When To Expect Changes to Medicare Premiums

Your income from 2 years prior determines what you pay in Medicare premiums each year. So you can expect adjustments up or down as your income fluctuates year to year during retirement.

Major life events like retirement, a new job, or marrying/divorcing can significantly impact your MAGI and Medicare costs. Be aware premium changes will lag a couple years behind income shifts.

Stay on top of estimating your expected MAGI and proactively plan for potential Medicare premium changes down the road.

We’re Here to Help

You do not have to spend hours reading articles on the internet to get answers to your Medicare questions. Give the licensed insurance agents at Lane Financial Strategies a Call at (804) 897-2170. You will get the answers you seek in a matter of minutes, with no pressure and no sales pitch. We are truly here to help.

FAQs

How is income linked to Medicare premiums?

Income is linked to Medicare premiums through the Income-Related Monthly Adjustment Amount (IRMAA). If you have a higher income, you may be required to pay higher premiums for Medicare Part B and Part D. IRMAA is determined based on your adjusted gross income (AGI) or modified adjusted gross income (MAGI) from your tax return.

What is IRMAA?

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional amount that some beneficiaries need to pay on top of their regular Medicare premiums, based on their income levels. IRMAA affects both Medicare Part B and Part D premiums.

How does income affect Medicare premiums?

Your income affects Medicare premiums by determining whether you will pay higher premiums or not. If your income has gone beyond a certain threshold, you may be subject to paying higher premiums for your Medicare Part B and Part D Plans.

How is IRMAA calculated?

IRMAA is calculated based on your income from two years ago. For example, in 2023, your IRMAA will be based on your income from the tax year 2021. The Social Security Administration (SSA) uses the information from your tax return to determine your IRMAA amount.

What is the premium amount for Medicare Part B and Part D plan in 2023?

The premium amount for Medicare Part B and Part D in 2023 will vary based on your income. The standard Part B premium for most people is $164.90 per month, but if your income exceeds certain limits, you may need to pay a higher premium.

How can I find out if I need to pay the Medicare income-related monthly adjustment amount?

You can find out if you need to pay the Medicare income-related monthly adjustment amount by reviewing the information on your Social Security statement or contact Social Security Administration. They will be able to provide you with the details regarding your premiums based on your income.

Can a life-changing event affect my Medicare premiums?

Yes, a life-changing event can potentially affect your Medicare premiums. If you experience a life-changing event, such as marriage, divorce, death of a spouse, or reduction in work hours, you may be able to request a review of your Medicare premiums and have them adjusted accordingly.

How is my income used to determine Medicare premiums?

Your income is used to determine Medicare premiums by calculating your income-related monthly adjustment amount (IRMAA). The Centers for Medicare and Medicaid Services (CMS) use your income information from two years ago to assess whether you need to pay higher premiums or not.

What types of income are considered when determining Medicare premiums?

When determining Medicare premiums, various types of income are considered, including but not limited to: adjusted gross income (AGI), modified adjusted gross income (MAGI), tax-exempt interest income, and income from rental properties or other income-producing assets.

Should inform Social Security if my income has changed since the last tax year?

If your income has changed since the last tax year, you should inform the Social Security Administration by contacting them directly. They will be able to assist you in updating your income information and making any necessary adjustments to your Medicare premiums.