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Medicare health insurance premiums can add up to significant dollars—especially if you’re upper-income, you’re married, and both you and your spouse are paying for Medicare.

 

What Is Medicare Part B Coverage?

 

Medicare Part B coverage is commonly called Medicare medical insurance or Original Medicare. Part B mainly covers doctors and outpatient services.

 

Medicare-eligible individuals must pay monthly premiums for this benefit.

 

How Are Part B Premiums Determined and Paid?

 

The monthly premium for the current year depends on your modified adjusted gross income (MAGI), as reported on your Form 1040 two years earlier. For Medicare, MAGI means the adjusted gross income (AGI) number shown on your Form 1040 plus any tax-exempt interest income.

 

Your 2022 Part B premiums will depend on your 2020 MAGI, as reported on your 2020 Form 1040.

 

Your 2023 premiums will depend on your 2021 MAGI, as reported on your yet-to-be-filed 2021 Form 1040. That means that things you do or don’t do on that 2021 return can impact your 2023 premiums. This is especially true if you’re self-employed with a Coeur d’Alene Idaho Business or an owner of a pass-through business entity (LLC, partnership, or S corporation).

 

Part B premiums are withheld from your Social Security benefit payments and are shown on the annual Form SSA-1099 sent to you by the Social Security Administration (SSA).

 

What Were 2021 Part B Premiums?

 

Although this is history, it’s still good to know. For 2021, most individuals paid the base Part B premium of $148.50 per covered person ($1,782 for a full year).

 

Part B Premium Surcharges

 

Higher-income individuals must pay a surcharge on top of the base premium for Part B coverage. In gov-speak, the surcharge is called an Income-Related Monthly Adjustment Amount (IRMAA), but let’s just call it a surcharge, because that’s what it is.

 

2021 Premiums Including Surcharges

 

For 2021, surcharges applied if you (1) filed as a single taxpayer for 2019 and reported MAGI for that year in excess of $88,000, or (2) filed jointly for 2019 and reported MAGI for that year in excess of $176,000. For 2021, Part B monthly premiums, including surcharges if applicable, for each covered individual were as follows:

 

Monthly Amounts You Paid in 2021 for Medicare Part B

2019 MAGI (single)

2019 MAGI (joint)

Per person, you paid

$88,000 or less $176,000 or less

$148.50

above $88,000 and up to $111,000 above $176,000 and up to $222,000

$207.90

above $111,000 and up to $138,000 above $222,000 and up to $276,000

$297.00

above $138,000 and up to $165,000 above $276,000 and up to $330,000

$386.10

above $165,000 and less than $500,000 above $330,000 and less than $750,000

$475.20

$500,000 or above $750,000 or above

$504.90

 

Key point. As you can see, the premiums quickly became quite expensive as you climbed the income ladder, especially for single filers.

 

Example. If you are single and had 2019 MAGI of $170,000, you paid $475.20 a month for Medicare Part B ($5,702.40 for the year). Had your 2019 MAGI been $85,000, you would have paid $1,782 total in 2021 Medicare premiums.

 

What Will 2022 Part B Premiums Be?

 

For 2022, most individuals will pay the base Part B premium of $170.10 per covered person ($2,041.20 if you pay premiums for the full year). As stated earlier, higher-income individuals must pay a surcharge on top of the base premium for Part B coverage, as shown in the table below:

 

Monthly Amounts You Pay in 2022 for Medicare Part B

2020 MAGI (single)

2020 MAGI (joint)

Per person, you pay

$91,000 or less $182,000 or less

$170.10

above $91,000 and up to $114,000 above $182,000 and up to $228,000

$238.10

above $114,000 and up to $142,000 above $228,000 and up to $284,000

$340.20

above $142,000 and up to $170,000 above $284,000 and up to $340,000

$442.30

above $170,000 and less than $500,000 above $340,000 and less than $750,000

$544.30

$500,000 or above $750,000 or above

$578.30

 

Key point. As you can see, the 2022 premiums are significantly higher than the 2021 amounts. We don’t yet know the numbers for 2023, but they will probably be considerably higher than the 2022 amounts. Ugh!

 

What Is Medicare Advantage (Medicare Part C)?

 

You can get your Medicare Part B benefits through the government, for the monthly premium costs listed above, or you can get your benefits through a so-called Medicare Advantage plan offered by a private insurance company that contracts with Medicare to provide benefits under rules established by Medicare.

 

Medicare Advantage plans are also sometimes called Medicare Part C.

 

Medicare Advantage Basics

 

When you sign up for a Medicare Advantage plan, you still must pay the standard Part B premium, including any applicable surcharge for higher-income folks, and you still get the standard Part B coverage.

 

The advantage is that the Medicare Advantage plan will deliver benefits beyond what the government gives you under Part B, such as prescription drug coverage, dental care, and vision care. You may be charged an additional monthly premium for the Medicare Advantage plan, but depending on where you live, some plans don’t charge anything extra.

 

The additional premium, if any, depends on the plan you select and where you live. With a Medicare Advantage plan, you are usually limited to a defined provider network, which you may view as a disadvantage.

 

Medicare Advantage Payments

 

When you have a Medicare Advantage plan, the standard Part B premiums, including any surcharge for higher-income folks, will still be withheld from your Social Security benefit payments and will still be shown on the annual Form SSA-1099 sent to you by the SSA.

 

If you pay an extra premium for your Medicare Advantage coverage, you can pay it like any other bill or arrange to have it withheld from your Social Security benefit payments.

 

What Is Medicare Part D, and What Are the Premiums?

 

Medicare Part D premiums are for private prescription drug coverage. Base premiums vary depending on the plan. Higher-income individuals must pay a surcharge on top of the base premium. Once again, the feds call it an IRMAA, but we will call it a surcharge.

 

2021 Part D Surcharges

 

For 2021, surcharges applied to individuals who (1) filed as singles for 2019 and reported MAGI for that year in excess of $88,000, or (2) filed joint returns for 2019 and reported MAGI in excess of $176,000. The 2021 monthly Part D surcharges for each covered person were as follows:

 

Monthly Amounts You Paid in 2021 for Medicare Part D

2019 MAGI (single)

2019 MAGI (joint)

Per person, you paid

$88,000 or less $176,000 or less

$0.00

above $88,000 and up to $111,000 above $176,000 and up to $222,000

$12.30

above $111,000 and up to $138,000 above $222,000 and up to $276,000

$31.80

above $138,000 and up to $165,000 above $276,000 and up to $330,000

$51.20

above $165,000 and less than $500,000 above $330,000 and less than $750,000

$70.70

$500,000 or above $750,000 or above

$77.10

 

2022 Part D Surcharges

 

For 2022, surcharges will apply to individuals who (1) filed as singles for 2020 and reported MAGI for that year in excess of $91,000, or (2) filed joint returns for 2020 and reported MAGI in excess of $182,000. The 2022 monthly Part D surcharges for each covered person are as follows:

 

Monthly Amounts You Will Pay in 2022 for Medicare Part D

2020 MAGI (single)

2020 MAGI (joint)

Per person, you will pay

$91,000 or less $182,000 or less

$0.00

above $91,000 and up to $114,000 above $182,000 and up to $228,000

$12.40

above $114,000 and up to $142,000 above $228,000 and up to $284,000

$32.10

above $142,000 and up to $170,000 above $284,000 and up to $340,000

$51.70

above $170,000 and less than $500,000 above $340,000 and less than $750,000

$71.30

$500,000 or above $750,000 or above

$77.90

 

Key point. As you can see, the 2022 surcharges are barely above the 2021 amounts. Good! We don’t yet know the numbers for 2023, but we can hope for more good news. Fingers crossed!

 

Payments for Part D Coverage

 

You pay the base Part D premium, which depends on the private insurance company plan that you select, to the insurance company. Any surcharge will be withheld from your Social Security benefit payments and reflected on the annual Form SSA-1099 sent to you by the SSA.

 

Planning for Next Year (2023): What Can You Do Now Before Filing Your 2021 Form 1040?

 

Taxable income has consequences.

 

Your 2021 Form 1040 can reflect decisions that affect your 2021 MAGI and, in turn, your 2023 Medicare health insurance premiums. If you’re self-employed or an owner of a pass-through business entity, you have more ways to reduce your MAGI. For instance:

 

·

Until the due date for your 2021 Form 1040 (October 17, 2022, if you get an extension), you as a self-employed individual can make a bigger or smaller deductible contribution to your self-employed retirement account for your 2021 tax year. Your choice will impact your 2021 MAGI and, in turn, your 2023 Medicare health insurance premiums.

·

You as an owner of a pass-through business entity (along with the other owners, if applicable) can make other choices that will impact your 2021 MAGI, such as choosing to maximize or minimize depreciation deductions for the entity. Those choices will impact each owner’s 2021 MAGI and, in turn, his or her 2023 Medicare health insurance premiums.

 

Key point. Sure, 2021 is over. But because your tax return has not yet been filed, you can choose from the possibilities listed above for reducing your taxable income, which also reduces your Medicare MAGI.

 

What About Delayed Premium Surcharges?

 

For years, the IRS has had big-time data processing problems, and nothing has changed yet for 2022 and likely beyond. For that reason, it can take a long time for Medicare health insurance premium surcharges for the year in question to catch up with the MAGI number reported on your Form 1040 for two years earlier—and eventually reported by the IRS to the SSA.

 

When the SSA finally gets your MAGI number for two years earlier, it will refigure your Part B and Part D surcharges, if necessary. If prior withholding from your Social Security benefits did not cover the refigured surcharges, you will be charged the difference via additional withholdings.

 

For example, if you extended your 2019 Form 1040 return and filed at the extended deadline, you may just now be finding out how much your actual Part B and Part D surcharges were for 2021. Any shortfall between what was actually withheld from your Social Security benefits in 2021 and what should have been withheld for that year after the SSA’s refiguring will be withheld from your 2022 benefits.

 

If you paid too much, SSA will credit your account.

 

Can I Deduct Medicare Health Insurance Premiums?

 

You can combine premiums for Medicare health insurance coverages with other qualifying health care expenses for purposes of claiming the itemized federal income tax deduction for medical expenses on Form 1040. Under current law, you can claim an itemized medical expense deduction to the extent your total qualifying expenses exceed 7.5 percent of AGI.

 

If you’re self-employed or an S corporation shareholder-employee, you can potentially claim an above-the-line deduction for health insurance premiums, including Medicare health insurance premiums. If you qualify, you don’t need to itemize to collect the tax savings from your Medicare premium payments.5

 

Can I Take Tax-Free HSA Distributions to Cover Medicare Health Insurance Premiums?

 

Yes! You can take federal-income-tax-free health savings account (HSA) distributions to reimburse yourself for Medicare health insurance premium costs if you’re age 65 or older. That’s one of the key benefits of the HSA.

 

If you take distributions during the year, fill out IRS Form 8899, Health Savings Accounts (HSAs), and include it with your Form 1040 for that year.

 

Takeaways

 

Medicare health insurance premiums can add up to major bucks, and premiums for Part B coverage will probably increase significantly again in 2023. So, this is not a trivial issue.

 

Medicare health insurance premiums and the related tax implications have lots of moving parts, and what you do with your 2021 Form 1040 can impact your 2023 premiums.

 

While 2023 seems far in the future right now, it will be here before you know it (11 months from now). So, keep the Medicare health insurance premium factor in mind when making decisions for your 2021 Form 1040.

 

And of course, think ahead. Use the strategies you find on this website to keep your 2022 taxable income low and to reduce both your income taxes and Medicare costs.