Medicare Part B and Part D Prescription Premium Payments: Monthly medicare (retiree medical insurance) premium payments, for Part B, (as well as Part D Prescription Drug Plan costs) are typically deducted directly from your monthly Social Security check. (Note other benefits that medicare premium costs can be deducted other than social security include Railroad Retirement Board and Office of Personnel Management – else you are sent a bill and you pay the premium direct).
Medicare Part B and Part D Prescription Cost Amount – The “Means Test’: The amount of the medicare premium payment changes annually, typically (1) adjusted upwards based on escalating health costs as well as (2) a ‘means test’. The ‘means test’ means that in addition to medical cost inflation increases, even though most people will pay the standard premium amount… if your Modified Adjusted Gross Income (MAGI – explained below) – which varies whether if you are filing as an individual or joint tax return – is above a certain amount, you will pay an additional Income Related Monthly Adjustment Amount (IRMAA). Medicare uses the Modified Adjusted Gross Income reported on your IRS tax return from 2 years ago. For example, your Medicare premium for 2019, will depend on your 2017 MAGI. (see www.medicare.gov, your medicare costs)
If there has been special ‘Life-Changing Events” (see IRS Form SSA-44) that are limited to: Marriage, Divorce/Annulment, Death of a Spouse, Work Stoppage or Reduction (such as retirement), Loss of Income-Producing Property, Loss of Pension Income or Employer Settlement Payment, you may be able to adjust (downward) the IRMAA premium, earlier than the 2 year look back schedule.
For 2019, monthly Medicare Part B premiums range from a low of $134.00 (the standard premium, no IRMAA) to a high of $428.60 (includes IRMAA. IRMAA additional premium ranges from a low of $53.50 to a high of $294.60 per month which is added to the $134.00 monthly standard premium). Part D Prescription plan IRMAA premium ranges from a low of $13.30 to $76.20 per month which is added to the base cost of the particular prescription drug plan a taxpayer signs up to.
In otherwords, higher income earners not only pay more medicare tax withholding when they are employed (social security tax, medicare tax as well as possibly ‘Additional Medicare tax’), higher income individuals are also exposed to the IRMAA additional medicare premium payments – thus the ‘means test’.
Modified Adjusted Gross Income (MAGI) is determined as follows… find (from your tax return 2 years back) your Adjusted Gross Income from line 38 of your Form 1040, line 22 of your Form 1040A or line 36 of your form 1040NR. Adjusted Gross Income (AGI) is generally your gross income less certain deductions. AGI will include not only any employment income, but also taxable retirement income (such as 401k or IRA distributions, retirement income from a defined benefit plan, social security income). Some retirees will typically include in their first year of retirement a bump in taxable income due to certain taxable retirement benefits having to be immediately paid to the tax payer…which can result in IRMAA adjustments to Medicare Part B premiums. (Be aware IRMAA also applies to Prescription Drug Plan premiums as well).
To determine your Modified Adjusted Gross Income, add back to your Adjusted Gross Income the following items: Traditional IRA contributions that were deducted; Student loan interest amounts deducted; Tuition and fees deducted; Domestic production activities deducted; Foreign income or housing costs excluded on Form 2555; Foreign housing deduction taken on Form 2555; Savings bond interest excluded on Form 8815; Adoption benefits from an employer excluded on Form 8839. Your Medicare Part B and Prescription Drug Plan Premiums are determined by the Social Security Administraton Medicare administration department and you are sent every year a notice of what your premiums will be for the following year based on your tax records from two years back, and appropriate MAGI and IRMAA calculations made to determine your premium. You have the right to object to this premium if you think it is too high and file for a review or an appeal. So if in doubt, check your own AGI, MAGI and IRMAA numbers (2 years back) to confirm for yourself if you are being charged the correct premium. If you are not being charged any IRMAA (which your annual Social Security Medicare Premium letter will advise)…then there is no need to check AGI and MAGI numbers.
Attached spreadsheet is a guideline for determining AGI and MAGI which may then be used to determine IRMAA. https://ino-consumerhelp.com/wp-content/uploads/2018/12/AGI-MAGI-Determination-1.pdf