Medicare Premium Reduction Strategy For Higher Income Seniors

Are you one of the 4.7 million higher-income seniors paying Uncle Sam an additional premium surcharge for Medicare coverage? If so, adopting one simple step prior to filing your 2022 federal income taxes can help avoid or reduce the cost of future Medicare benefits.

Starting in 2007 Medicare began implementing the Income Related Monthly Adjustment Amount (IRMAA) surcharge. Individuals with Medicare Part B began paying more for Medicare. Several years later, a surcharge for Part D (prescription drug coverage) was imposed.

Each year multiple threshold income levels are set. The amount paid by Medicare beneficiaries is determined by the amount of Modified Adjusted Gross Income (MAGI) reported on tax filings. The 2023 IRMAA Medicare premium amounts are based on 2021 federal tax filings.

There are five surplus threshold levels and even a small amount of income can push an individual into the next bracket. For example, if a married couple’s 2021 MAGI was $245,500, their Medicare Part B premium this year will be $230.80-per-month. If it is more than $246,000 each spouse will pay $329.70 monthly, a $197.80 difference for the couple. The added annual cost for both resulting from that additional $500 of income is $2,373.

Add to that amount the IRMAA surcharge amount for Medicare Part D drug coverage. Using the same income scenario, a couple will pay $38.60-per-month, or an additional $463 annually. For most people, these amounts are deducted from monthly Social Security benefits.

2022 Taxes Will Determine 2024 Medicare IRMAA

The majority of seniors impacted by the Medicare premium surcharge are between ages 65 and 80. For 2023, the IRMAA monthly surcharge for Medicare Plan B ranges from $230.80 to as much as $560.50 for someone filing as a single taxpayer reporting MAGI of $500,000 or more. For a couple filing jointly, the maximum MAGI level is exceeded when incomes are $750,000 or more.

Taxes filed for 2022 will determine the IRMAA for Medicare surcharge assessed in 2024. The threshold levels will not be announced until closer to then (well after your 2022 taxes are due). In addition, most tax maneuvers need to have been made prior to the end of the 2022 tax year.

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MAGI Versus AGI

Modified Adjusted Gross Income (MAGI) is not shown on tax filings. MAGI is actually a combination of Adjusted Gross Income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.

For many people, MAGI is typically identical or very close to adjusted gross income (AGI). And, AGI is shown on tax filings. For 2022, it can be found on Line 11 of the 1040 form.

Look For These 2022 AGI Trigger Thresholds

Higher income seniors, especially those who have some earned income from employment or self-employment, can especially benefit from a quick review of the AGI number shown on Line 11 prior to submitting 2022 taxes.

Each year the IRMAA levels are increased based on the rate of inflation. The American Association for Medicare Supplement Insurance (AAMSI) projected suggested 2024 IRMAA Medicare levels by using current numbers increased by 6 percent.

For individuals filing Federal taxes as a single, the 2022 Adjusted Gross Income (AGI) levels AAMSI suggests watching for are; $103,000, $130,500, $162,000, $194,000 and $530,000. For couples filing jointly, the magic numbers are $206,000, $261,000, $324,500, $388,000 and $795,000.
An accountant or CPA can calculate the all-important MAGI number. Tax software programs such as TurboTax say they can do this but typically have proven difficult to use.

If your 2022 AGI is close to or just slightly over one of the projected threshold numbers, it can really pay to discuss options with a tax professional. For those with salary income, a last-minute IRA or SEP-IRA contribution may yield that magical double benefit; paying less for Medicare in 2024 and adding to future retirement savings.