One way that Medicare manages costs is by basing premiums on adjusted gross income (AGI). The vast majority of beneficiaries – over 95 percent – pay the standard premium for Parts B and D. But if you’re what Medicare calls a high earner, you pay a higher monthly premium. How much higher? That depends on your income. The good news is that, with a little planning, high earners can lower their Medicare surcharges.
Medicare considers you a high earner in 2020 if your modified adjusted gross income (MAGI) in 2018 was over $87,000 (filing singly) or $174,000 (married filing jointly).
These thresholds are slightly higher than they were last year. Between 2011 and 2019, the thresholds remained stagnant at $85,000 and $170,000 respectively. An adjustment for inflation is responsible for the increase this year.
Your modified adjusted gross income is the combination of two items:
No, all higher earners do not pay the same surcharges. The amount you pay varies according to your modified adjusted gross income.
To arrive at your monthly premium, Medicare always looks at your reported income from two years ago. The table below demonstrates your monthly premium for Medicare Part B at each income range.
|2018 Annual Income, Filing Individual||2018 Annual Income, Married Filing Jointly||Medicare Part B Premium in 2020|
|Up to $87,000||Up to $174,000||$144.60|
|$87,000 to $109,000||$174,000 to $218,000||$202.40|
|$109,000 to $136,000||$218,000 to $272,000||$289.20|
|$136,000 to $163,000||$272,000 to $326,000||$376.00|
|$163,000 to $500,000||$326,000 to $750,000||$462.70|
|Over $500,000||Over $750,000||$491.60|
Most programs look only at your taxable income, so don’t forget that Medicare is slightly different in considering your modified adjusted gross income.
Part D premiums vary according to the plan and insurance provider you choose. So, instead of listing a static amount that high earners pay for Part D, the following table shows the surcharge amount.
|2018 Annual Income, Filing Individual||2018 Annual Income, Married Filing Jointly||Medicare Part D Premium in 2020|
|Up to $87,000||Up to $174,000||Your Plan's Standard Premium|
|$87,000 to $109,000||$174,000 to $218,000||Your Plan's Standard Premium + $12.20|
|$109,000 to $136,000||$218,000 to $272,000||Your Plan's Standard Premium + $31.50|
|$136,000 to $163,000||$272,000 to $326,000||Your Plan's Standard Premium + $50.70|
|$163,000 to $500,000||$326,000 to $750,000||Your Plan's Standard Premium + $70.00|
|Over $500,000||Over $750,000||Your Plan's Standard Premium + $76.40|
If you owe a surcharge, your provider automatically adds it to your monthly premium.
You’re more likely to succeed in reducing your Medicare surcharges if your income is fairly close to the thresholds listed above. For example, if your MAGI is lower than $87,000 but over $85,000, this year’s adjustment for inflation means you no longer face surcharges – even if your income remained stagnant from year to year.
It’s also important to note that those thresholds are fairly rigid. If your MAGI is even $1 over, you may face surcharges. But, as stated at the beginning: Over 95 percent of beneficiaries pay the standard premium (or even less).
And now, finally, the four ways to lower your Medicare premiums.
Since your AGI includes deductions, there are a number of ways to reduce it without lowering your actual earnings. You should talk to your accountant or financial advisor, but a few ideas include:
Again, it’s always best to talk to your financial advisor.
Income from both Roth IRAs and Health Savings Accounts isn’t taxable, which means it won’t raise your AGI. Just make sure any HSA payouts are for qualifying medical expenses or you lose that tax-free benefit.
Because of annual withdrawal requirements, it’s not easy to lower your adjusted gross income if you have an IRA. That all changes once you reach the magical age of 70-1/2. That’s when tax laws allow you to make charitable donations from your IRA account. And oh yeah, those donations count toward your annual withdrawal requirement, effectively lowering your AGI.
Life can change a lot in two years and that’s especially true of income. Life-changing events like retirement, divorce, or the death of a spouse often lead to significant changes in income. If you exceeded one of those high earner thresholds in 2018 but don’t any longer, you can request a reassessment by filing Form SSA-44, also known as the Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event.
Please note that the reassessment is for changes you expect to be permanent, not temporary fluctuations in income.
With a bit of forward planning, you can reduce your Medicare premium surcharges, potentially saving hundreds or even thousands of dollars. Your financial advisor can help. And when you’re ready to compare your Medicare plan options, our Find a Plan tool can help. Just enter your location information, expected start date, and hit Continue. It’s simple and won’t cost you a penny.
Chris Gasparini has been a licensed insurance agent since 2005. He enjoys helping Medicare beneficiaries navigate their options to find the best solution for their unique needs. Chris feels as though his work truly helps people. Because he represents multiple insurance companies and plan types, Chris is able to help Medicare beneficiaries find the best, most cost-effective plan. Every day, he leaves work knowing he did what was right for each and every client he serves.
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Last Updated 12/21/2018