Medicare Deductions Come From Two Places

Medicare costs are deducted in two different ways depending on whether you are still working or already receiving Social Security. If you are working, your employer and you each pay a payroll tax of 1.45% of your wages — that is 2.9% total. If you are receiving Social Security, Medicare premiums are deducted directly from your monthly benefit check. The amount you pay depends on which parts of Medicare you have enrolled in and your income level.

Most people do not choose how much to pay. The payroll tax rate is set by law. Your premiums for Part B (doctor visits) and Part D (prescription drugs) are based on your income from two years ago, a rule called income-related monthly adjustment amounts, or IRMAA. Higher income means higher premiums. Part A (hospital insurance) has no monthly premium for most people who paid Medicare taxes while working.

Key Takeaways

  • If you are working, you and your employer each pay 1.45% of your wages to Medicare, totaling 2.9%.
  • If you receive Social Security, your Part B and Part D premiums are subtracted from your monthly check, and the amount depends on your income from two years prior.
  • Part A (hospital insurance) usually costs nothing monthly if you paid Medicare taxes for at least 10 years while working.
  • Higher earners pay an extra 0.9% Medicare tax on wages above a certain threshold, and higher-income retirees pay surcharges on Part B and Part D premiums.
  • You can request a review if your income dropped due to retirement or other life changes, which may lower your premiums.

Payroll Deductions While You Are Still Working

When you work, Medicare tax comes out of every paycheck. You pay 1.45% and your employer pays 1.45%. This is separate from Social Security tax (which is 6.2% for you and 6.2% for your employer). The Medicare tax has no wage cap — it applies to all your earnings, no matter how much you make.

If you earn more than $200,000 as a single filer (or $250,000 if married filing jointly), you pay an additional 0.9% Medicare tax on the income above that threshold. Your employer does not match this extra amount. This higher earner tax began in 2013 and applies to both wages and self-employment income.

Part A Premium and Hospital Insurance Costs

Part A covers hospital stays, skilled nursing facility care, hospice, and some home health services. Most people who worked and paid Medicare taxes for at least 10 years (40 quarters) pay nothing for Part A. If you did not work long enough, you can buy Part A, and the monthly premium ranges depending on how many quarters you paid into Medicare — the Social Security Administration sets these amounts and they change yearly.

Even with Part A, you still pay out-of-pocket costs when you use hospital services. You pay a deductible (a set amount before insurance kicks in) for each hospital stay, and you may pay daily copayments for stays longer than 60 days. These are not deducted from your paycheck or Social Security — you pay them when you receive the service.

Part B Premium and Doctor Visit Coverage

Part B covers doctor visits, outpatient care, lab tests, and medical equipment. Most people pay a monthly premium for Part B. The standard premium in 2024 is $174.70 per month, but this amount changes yearly. If you have higher income, you pay more — this is the IRMAA surcharge mentioned above.

Your Part B premium is deducted from your Social Security check if you receive benefits. If you do not receive Social Security yet, Medicare bills you directly. You also pay a yearly deductible ($240 in 2024) before Part B coverage begins, and then you typically pay 20% of the cost of covered services after that.

If you delay enrolling in Part B after you turn 65, you may face a permanent penalty — an extra 10% added to your premium for each year you waited. This penalty stays with you for life, so timing your enrollment matters.

Part D Premium and Prescription Drug Coverage

Part D is optional coverage for prescription drugs. The monthly premium varies widely depending on which plan you choose — plans range from roughly $7 to $100+ per month. You pick a plan during the annual enrollment period (October 15 to December 7), and your choice affects what you pay for the rest of the year.

Like Part B, if your income is higher, you pay an IRMAA surcharge on top of your plan premium. You also pay out-of-pocket costs when you fill prescriptions: a copayment or coinsurance for each drug, depending on the plan and the drug's tier. If you do not enroll in Part D when you first turn 65, you may face a permanent penalty of about 1% per month for every month you were not covered.

How Income Affects Your Premiums (IRMAA)

If your income is above certain thresholds, you pay higher premiums for Part B and Part D. Medicare uses your modified adjusted gross income from your tax return from two years ago. For 2024, single filers with income over $97,000 and married filers with income over $194,000 begin paying surcharges. The higher your income, the higher the surcharge — there are five income brackets, and the highest earners pay roughly three times the standard premium.

The two-year lag means your 2024 premiums are based on your 2022 income. This matters if you recently retired or had a major life change. If your income dropped significantly — because you retired, had a loss, or experienced a major life event — you can request that Medicare recalculate your premiums based on your current year income. You file a form called the Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event (form SSA-44). Social Security processes this request, and if approved, your premiums may drop.

Medigap and Medicare Advantage Premiums

Medigap (supplemental insurance) and Medicare Advantage (Part C, an alternative to Original Medicare) are not deducted from your paycheck or Social Security. You pay these premiums directly to the insurance company. Medigap premiums vary by plan and location — they can range from $100 to $300+ per month depending on your age and the plan you choose. Medicare Advantage premiums are often lower or even zero, but you pay different out-of-pocket costs when you use services.

These are separate purchases from Original Medicare (Parts A, B, and D). If you have Medicare Advantage, you do not pay Part B and Part D premiums to Medicare — instead, you pay the Advantage plan premium. If you have Medigap, you pay both your Original Medicare premiums and your Medigap premium.

What to Ask Your Doctor and When to Seek Help

Before you turn 65, ask your employer or benefits administrator about your company's retiree health plan. Some employers offer coverage that coordinates with Medicare and can lower your out-of-pocket costs. If you are self-employed or do not have employer coverage, ask a Social Security representative or visit Medicare.gov to understand your options before your enrollment window opens.

If your income drops after you enroll — because you retire, sell a business, or experience a major life event — contact Social Security right away. Do not wait for your next annual notice. A timely request for recalculation can lower your premiums within months. If you receive a notice showing a premium increase that seems wrong, request a review rather than paying it and hoping for a correction later.

Frequently Asked Questions

Why are my Medicare premiums so high if I just retired?

Medicare bases your premiums on your income from two years ago. If you had high earnings before retirement, your 2024 premiums reflect that earlier income. Once you file your current year tax return showing lower retirement income, you can request a recalculation. Contact Social Security with proof of your life change (retirement letter, tax return, or other documentation) to ask for a new calculation.

Can I avoid the 0.9% extra Medicare tax on high wages?

No. The extra Medicare tax on wages above $200,000 (single) or $250,000 (married) is mandatory and set by law. Your employer withholds it from your paycheck. You cannot opt out, but you can plan ahead — some people adjust their work income or retirement timing to stay below the threshold if possible.

What happens if I do not pay my Medicare premium?

If your Part B or Part D premium is not deducted from your Social Security check and you do not pay it directly, your coverage can be terminated. You would lose your benefits until you pay the overdue amount and request reinstatement. If you cannot afford your premium, contact Social Security to discuss your options — some people may have access to for help paying premiums through Medicaid or other programs.

Do I have to pay Medicare tax if I am still working past 65?

Yes. You continue to pay the 1.45% Medicare tax (plus the 0.9% extra if your income is high enough) on all wages, even after you turn 65 and enroll in Medicare. This tax does not stop until you stop working.

Can my Medicare premiums change during the year?

Part B and Part D premiums are usually locked in for the calendar year based on your income from two years prior. However, if you experience a major life event (retirement, death of a spouse, significant income loss), you can request a recalculation outside the normal annual period. Changes from a recalculation typically take effect the following month.