Medicare costs depend on your income, but not in the way you might think

Medicare is not income-based in the sense that lower-income people pay less and higher-income people pay more across the board. Instead, your income determines whether you pay Income-Related Monthly Adjustment Amounts — extra charges added to your Part B (doctor visits) and Part D (prescription drugs) premiums. Most people pay the standard premium. Only those with higher incomes pay more.

The income threshold changes each year. In 2024, single filers with income over $103,000 and married couples filing jointly with income over $206,000 start paying these extra charges. The exact amount you pay depends on how much your income exceeds the threshold and which year's tax return Medicare uses to calculate it.

Your income is measured using your Modified Adjusted Gross Income from your federal tax return from two years before. So in 2024, Medicare looks at your 2022 tax return. This two-year lag matters because your income may have changed since then.

Key Takeaways

  • Most Medicare beneficiaries pay the same standard premium regardless of income; only those above a certain income threshold pay extra charges.
  • Income thresholds for extra charges are over $103,000 for single filers and over $206,000 for married couples filing jointly in 2024, but these amounts change yearly.
  • Medicare uses your tax return from two years prior to calculate whether you owe extra charges, so a recent drop in income may not show up when ready.
  • You can request that Medicare use your current year's income instead if you had a major life event like retirement, job loss, or death of a spouse.

How the income thresholds work

Medicare divides beneficiaries into income brackets. If your Modified Adjusted Gross Income falls within a bracket, you pay a percentage of the standard premium as an extra charge — typically 35 percent, 50 percent, 85 percent, or 100 percent more than the base amount, depending on which bracket you land in.

The brackets themselves shift upward each year. In 2023, the threshold was $97,000 for single filers; in 2024 it rose to $103,000. The Social Security Administration announces the new thresholds in the fall, and they take effect the following January. If you are near the threshold, check the current year's amounts before assuming you will or will not owe extra charges.

The extra charges explore only to Part B premiums and Part D premiums. They do not affect Part A (hospital insurance) premiums, which most people do not pay at all because they earned enough work credits during their working years.

Which income counts toward the threshold

Modified Adjusted Gross Income includes wages, self-employment income, interest, dividends, capital gains, and certain retirement distributions. It is not the same as your total income or your adjusted gross income on your tax return — Medicare adds back certain deductions that the IRS allows.

Social Security benefits do not count toward the threshold. Neither do Supplemental Security Income (SSI) payments or certain other income sources. This is one reason why many people with modest Social Security income do not trigger the extra charges even if they have other income sources.

If you are married and file taxes jointly, Medicare combines both spouses' incomes. If you file separately, each spouse's income is measured against the single-filer threshold, which is lower. Filing separately usually results in higher Medicare costs, so most couples should file jointly if they are able to.

How Medicare gets your income information

You do not have to report your income to Medicare. The Social Security Administration matches your Medicare records with your federal tax return automatically. The IRS sends Social Security the tax data, and Social Security uses it to calculate your extra charges.

Because Medicare relies on your tax return from two years ago, there is a built-in delay. If you retired last year and your income dropped significantly, Medicare will not know about it until your current-year tax return is filed and processed — which could take months after the tax important date.

This delay is why Medicare allows you to request a recalculation if your income has changed substantially since the tax return Medicare is using. The change has to result from a specific life event, not just a general income fluctuation.

Requesting a recalculation if your income changed

If you had a major life event that reduced your income — such as retirement, job loss, death of a spouse, or divorce — you can ask Medicare to use your current-year income instead of the two-year-old tax return. You will need to contact Social Security, not Medicare directly, to request this change.

Social Security accepts requests by phone at 1-800-772-1213 (TTY 1-800-325-0778). You will need to explain the life event and provide documentation, such as a termination letter from your employer, a death certificate, or a divorce decree. Social Security will ask you to estimate your current-year income.

The recalculation takes effect the month after Social Security approves your request. Your new premium will be based on the income estimate you provided. If your actual income turns out to be different, you may owe money back or receive a refund when you file your next tax return.

What happens if your income drops after you start paying extra charges

If you are paying extra charges based on a two-year-old tax return, and your income has since dropped, you will continue paying the extra amount until Medicare processes your next tax return. There is no automatic adjustment.

The exception is if you request a recalculation based on a may have access to life event, as described above. Otherwise, you have to wait for the annual adjustment cycle. In January of each year, Medicare recalculates everyone's charges based on the most recent tax data available.

This means if you retired mid-year and your income for that year was much lower, you might not see your charges drop until the following January — a wait of several months. Planning your retirement timing and income sources with this lag in mind can help you manage your Medicare costs.

Income-related charges for different Medicare parts

Part B (doctor visits and outpatient care) and Part D (prescription drugs) both have income-related extra charges. Part A (hospital insurance) does not. If you have Original Medicare plus a Medigap or Medicare Advantage plan, the extra charges explore to your Part B and Part D premiums, not to your supplemental plan.

The extra charges for Part B and Part D are calculated separately. You might owe extra on Part B but not Part D, or vice versa, depending on the income brackets and the specific premiums in your state. Your Social Security statement will show the breakdown of what you owe for each part.

If you have a Medicare Advantage plan instead of Original Medicare, the income-related charges still explore to the Part B portion of your premium, even though you are paying one combined premium to the insurance company.

Frequently Asked Questions

Can I lower my Medicare costs by reducing my income?

Reducing your income on purpose to lower Medicare charges is rarely practical and can have tax consequences that outweigh the savings. However, timing when you take retirement distributions, managing capital gains, or deferring certain income can sometimes help. Speak with a tax professional about your specific situation before making changes.

What if I disagree with the income Medicare is using?

Contact Social Security at 1-800-772-1213 to dispute the income amount. You will need to provide documentation showing that the income figure is wrong — such as a corrected tax return or an amended return you filed. Social Security will review your documents and recalculate if needed.

Do I have to pay extra charges if I am still working?

Your employment income counts toward the threshold just like any other income. If your total Modified Adjusted Gross Income exceeds the threshold, you will owe extra charges regardless of whether you are working or retired. The extra charges do not stop when you turn 65 or reach full retirement age.

Will my spouse's income affect my Medicare charges?

Yes, if you file taxes jointly. Medicare combines both spouses' incomes for the calculation. If you file separately, each spouse's income is measured against the single-filer threshold, but filing separately usually results in higher overall Medicare costs for the couple.

What if my income is below the threshold one year and above it the next?

Your charges will change in January of the year after your income crosses the threshold. If your income rises above the threshold in 2024, you will start paying extra charges in January 2026 (based on your 2024 tax return). If it drops below the threshold, your extra charges will end the following January.