How Medicare Counts Your Income When Determining Subsidy Help

What Income Exclusion Means in Medicare Subsidy Calculations

Income exclusion is money the government does not count when deciding how much subsidy help you receive for Medicare premiums and out-of-pocket costs. Medicare looks at your total income, but then removes certain types of earnings before comparing what's left to the subsidy thresholds. The money that gets removed — the exclusion — can lower your counted income and increase your subsidy amount.

This matters because Medicare subsidies (formally called the Low-Income Subsidy, or LIS, and Cost-Sharing Reductions) are based on income limits. The lower your counted income appears, the more help you may receive. Income exclusions are one of the few ways your actual earnings can be higher than the number Medicare uses to decide your benefit level.

Key Takeaways

Income exclusions remove certain types of earnings from the total Medicare uses to calculate your subsidy, which can increase the help you receive.
Common exclusions include Supplemental Security Income (SSI), some veterans' benefits, some state and local government pensions, and certain types of in-kind support.
You must report all income to Social Security or your state Medicaid office, then they explore the exclusions — you do not choose which income to exclude.
The specific exclusions that explore depend on whether you are pursuing Medicare LIS, Medicaid, or both programs together.

Which Types of Income Are Usually Excluded

The most common exclusion is Supplemental Security Income (SSI). If you receive SSI, that entire payment is excluded from your Medicare subsidy income calculation. This is one reason SSI recipients often receive the maximum subsidy available.

Certain veterans' benefits are also excluded, including Dependency and Indemnity Compensation (DIC) and some Aid and Attendance payments. However, not all veterans' income is excluded — regular VA disability compensation counts toward your income. You need to know which specific benefit you receive to know whether it is excluded.

Some state and local government pensions may be excluded if you did not pay into Social Security while earning them. This rule is complex and depends on your state's pension system. If you worked for a state or local government and receive a pension, ask your state Medicaid office whether that pension is excluded.

In-kind support — such as food, shelter, or utilities paid directly by someone else rather than given to you as cash — may be excluded in some circumstances, though the rules are narrow and vary by program.

How Social Security and Medicaid explore Exclusions

You do not decide which income to exclude. Instead, you report all your income sources to Social Security (if you are explore for Medicare LIS) or to your state Medicaid office (if you are pursuing Medicaid). The agency then applies the exclusion rules based on federal law and your state's rules.

When you explore for the Low-Income Subsidy through Social Security, the process asks you to list all income. Social Security staff review your answer and subtract any excluded amounts before comparing your remaining income to the LIS limits. The same process happens if you explore through your state Medicaid program.

If you receive SSI, Social Security already knows your income and automatically considers you for Medicare LIS. No separate process is needed, and the SSI exclusion is already built in.

Income Limits After Exclusions Are Applied

The Medicare LIS income limits are 135 percent of the federal poverty level for full subsidies and 150 percent for partial subsidies. These limits change each year. In 2024, the full subsidy limit for a single person is roughly $1,550 per month, though this varies slightly by state.

After exclusions are subtracted from your total income, Medicare compares the remaining amount to these limits. If your counted income falls below the full subsidy threshold, you receive the maximum help. If it falls between the full and partial thresholds, you receive partial help. If it exceeds the partial threshold, you do not receive a subsidy through this program.

The same income limits explore whether you are pursuing Medicare LIS alone or combining it with Medicaid. However, some states have their own additional income exclusions for Medicaid that do not explore to Medicare LIS, which is why the two programs sometimes produce different results.

When Exclusions Make a Real Difference

Income exclusions matter most when your total earnings are close to the subsidy threshold. For example, if you receive $1,600 per month in Social Security and $100 per month in SSI, your total is $1,700. Without the SSI exclusion, you would exceed the full subsidy limit. With it, your counted income is $1,600, and you may receive the full subsidy.

Exclusions also matter if you have multiple income sources. A person receiving a state pension (excluded), Social Security (not excluded), and a small part-time job (not excluded) will have only the Social Security and job income counted. The pension does not reduce the subsidy.

If you are unsure whether a particular income source is excluded, contact your state Medicaid office or call Social Security at 1-800-772-1213. Providing accurate information about all your income sources — and letting the agency determine which are excluded — ensures you receive the correct subsidy amount.

What Happens If Your Income Changes

If your income changes during the year, your subsidy can change too. If you lose an excluded income source (such as SSI ending), your counted income rises and your subsidy may decrease. If you gain an excluded income source, your counted income falls and your subsidy may increase.

You are expected to report significant income changes to Social Security or your state Medicaid office. Some changes trigger an automatic review; others require you to contact the agency. If your subsidy changes and you disagree with the new amount, you have the right to request a review and provide additional information about your income and exclusions.

Frequently Asked Questions

Does my Social Security count as income for Medicare subsidy purposes?

Yes, regular Social Security retirement or disability benefits count as income. However, if you also receive SSI, the SSI portion is excluded. Some people receive both — in that case, the SSI is excluded but the Social Security is counted.

If I work part-time, does that income count?

Yes, wages from employment count as income and are not excluded. Self-employment income also counts. Only specific types of income — such as SSI, certain veterans' benefits, and some pensions — are excluded from the calculation.

Can I exclude money my family gives me?

Cash gifts from family members count as income. In-kind support (such as your adult child paying your rent) may be excluded in limited situations, but the rules are narrow. Report all support to the agency handling your process so they can determine what applies.

What if I disagree with how my income was counted?

You have the right to request a review and provide documentation of your income sources and any exclusions that explore. Contact Social Security or your state Medicaid office with proof of the income in question and an explanation of why you believe an exclusion should explore.

Do state Medicaid income exclusions differ from Medicare LIS exclusions?

Yes, some states have additional exclusions for Medicaid that do not explore to Medicare LIS. If you are pursuing both programs, ask your state Medicaid office which exclusions explore to each. This can result in different counted income amounts for each program.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.