Medicare uses your income from two years ago to set what you pay each month

Medicare Part B (doctor visits and outpatient care) and Part D (prescription drugs) premiums are not flat fees for everyone. Instead, they rise based on your Modified Adjusted Gross Income (MAGI) — a figure taken from your tax return from two years before the year you're paying. If you're paying premiums in 2024, Medicare looked at your 2022 tax return. This two-year lag means your premium reflects your past income, not your current one.

Part A (hospital care) has no income-based premium for most people — you either paid into it through payroll taxes while working, or you don't pay a premium at all. But Part B and Part D premiums climb in brackets, meaning higher earners pay substantially more than lower earners for the same coverage.

Key Takeaways

  • Medicare uses your Modified Adjusted Gross Income from two years prior, pulled directly from your federal tax return, to calculate Part B and Part D premiums.
  • Premiums rise in income brackets — single filers and married couples filing jointly have different thresholds, and exceeding them triggers higher monthly costs.
  • If your income dropped significantly (retirement, job loss, divorce), you can request a Life-Changing Event adjustment to use current-year income instead of the two-year-old figure.
  • Part A has no income-based premium for those who paid Medicare taxes while working; Part B and Part D premiums increase together as income rises.
  • Your premium brackets reset each January, so changes in your income take effect the following year at the earliest.

What counts as income for Medicare premium calculations

Medicare's definition of income is broader than what you might think. It includes wages, self-employment income, interest, dividends, capital gains, rental income, Social Security benefits, pensions, and distributions from retirement accounts. The IRS form used is your Form 1040 line 11 (total income before adjustments), which then gets adjusted by certain deductions to reach your MAGI.

Social Security benefits are included in this calculation even though they are not taxable income on your return. If you have substantial investment income or rental property, those amounts push you into higher premium brackets. Conversely, if you have large deductions — mortgage interest, charitable contributions, or traditional IRA contributions — those reduce your MAGI and may lower your premiums.

The two-year lag can work in your favor or against you. If you retired and your income dropped sharply, your 2024 premiums still reflect your 2022 working income. If you had a windfall in 2022 (sale of a business, inheritance, large capital gain), your 2024 premiums reflect that spike even if your current income is much lower.

How income brackets determine your Part B and Part D costs

Medicare sets different premium brackets for single filers and married couples filing jointly. The thresholds change each year. For 2024, Part B premiums for a single person range from $174.70 per month (at or below $97,000 MAGI) to $560.50 per month (above $610,000 MAGI). A married couple filing jointly with MAGI above $244,000 pays higher premiums than one with MAGI below $145,000.

Part D premiums follow a similar structure. Your specific plan premium depends on the plan you chose, but an income-related surcharge is added on top. Someone with MAGI above the highest threshold might pay $80 to $100 more per month in surcharges alone, across both Part B and Part D combined.

These brackets are not fixed year to year. Medicare adjusts them annually to account for wage growth and inflation. A threshold that applied in 2023 may shift in 2024, so your premium can change even if your income stays the same.

Reporting changes: when and how to notify Medicare

If your income drops significantly in the current year — you retire, lose a job, go through a divorce, or have a major loss — you do not have to wait two years for your premiums to adjust. You can report a Life-Changing Event to Medicare and request that they use your current-year income estimate instead of the two-year-old figure.

Life-Changing Events that Medicare recognizes include retirement, loss of income, loss of a spouse, divorce, death of a family member, or a significant drop in income from investments or self-employment. You must report the change within 60 days of the event. Contact Social Security at 1-800-772-1213 or visit your local Social Security office with documentation: a letter from your employer stating your retirement date, a divorce decree, a death certificate, or a written estimate of your current-year income.

If you do not report a change and your premiums are too high based on your actual current income, you can request a reconsideration after the year ends. Social Security will review your case, but the process is slower than reporting upfront. The key is to act within the 60-day window if a major life event occurs.

How to find your MAGI and verify your income on file

Your MAGI is calculated from your most recent federal tax return. If you filed a Form 1040, look at line 11 (total income). Then subtract certain adjustments — educator expenses, student loan interest, IRA contributions, and a few others — to reach your adjusted gross income (AGI). Medicare then uses that AGI as your MAGI for premium purposes (with a small technical difference for some beneficiaries, but AGI is the practical figure).

You can view the income Medicare has on file by creating an account at ssa.gov and logging into your Social Security account. Under "Earnings Record," you can see what the Social Security Administration has recorded. If the figure is wrong — perhaps your tax return was amended, or an employer reported income incorrectly — you can request a correction by contacting Social Security with a copy of your corrected tax return.

If you believe Medicare is using the wrong income figure, request a Medicare Earnings Test Review from Social Security. Bring documentation of your actual income: tax returns, W-2s, 1099s, or a letter from your employer. The review can take several weeks, so submit it as soon as you notice the error.

What happens if your income changes mid-year

If your income rises mid-year — you receive a bonus, sell an investment, or start a side business — your 2024 premiums will not change until 2026 (when 2024 income is used). You will pay the same monthly amount for the rest of 2024 and all of 2025. In January 2026, your premiums adjust based on your 2024 actual income.

If your income drops mid-year and you meet the criteria for a Life-Changing Event, you can request an adjustment when ready. But if the drop is not tied to a recognized event — your investments lost value, or your rental income declined — you will have to wait for the two-year cycle to catch up. This is one reason some people with volatile income plan ahead: they may choose to defer taking certain income, or they may time large sales to spread income across multiple years.

Married couples have an additional consideration: if one spouse's income changes significantly, the couple's combined MAGI is what matters for Medicare premiums. A divorce or death of a spouse triggers a Life-Changing Event and allows both parties to request an adjustment based on new household income.

Frequently Asked Questions

Does my Social Security benefit count as income for Medicare premiums?

Yes. Even though Social Security is not taxable income on your federal return, Medicare includes it in your MAGI calculation. If you receive $2,000 per month in Social Security, that $24,000 per year is counted toward your income bracket for premium purposes.

What if I'm still working and have both wages and Social Security?

Both are counted. Your MAGI includes your wages, self-employment income, and Social Security benefits combined. If you earn $60,000 in wages and receive $20,000 in Social Security, your MAGI is $80,000 for Medicare premium calculations.

Can I reduce my Medicare premiums by reducing my income?

Not in the current year, because premiums are based on income from two years ago. However, if you plan ahead — for example, by timing the sale of an investment or deferring self-employment income — you can potentially lower your MAGI in a future year and see the benefit in premiums two years later. A tax professional can advise on strategies specific to your situation.

What if I disagree with the income Medicare is using?

Request a Medicare Earnings Test Review from Social Security with documentation of your actual income: your tax return, W-2s, or 1099s. If your return was amended after filing, submit a copy of the amended return. The review process takes several weeks, but you can request it at any time if you believe the figure is wrong.

Do I pay the higher premium when ready if my income goes up?

No. If your income rises in 2024, your premiums stay the same through 2025. In January 2026, when Medicare uses your 2024 tax return, your premiums adjust upward. The two-year lag applies in both directions.