In 2019, the standard monthly premium for Medicare Part B is $135.50. But, depending on one’s income, that monthly premium can be as high as $460.50. That’s a difference of almost $4,000 a year.
The reason for this potential delta, of course, is that Medicare is attempting to garner higher premiums from those with higher incomes to help cover the cost of Medicare services.
The premium amounts are based on something called “modified adjusted gross income,” and they are figured using one’s federal income tax returns two years’ prior to the year of the premium.
For example, premiums for 2019 were based on federal income tax returns of 2017, and the calculations work like this: To one’s adjusted gross income as filed in 2017, amounts are added for any tax exempt interest and any foreign country earnings that were not taxed. This yields one’s modified adjusted gross income, which easily can be higher than the adjusted gross income, and the Medicare premiums are based on the modified amount.
The 2020 Medicare premiums, then, will be based on modified adjusted gross incomes for 2018. The 2021 premiums will be based on tax returns of 2019, and so on.
Given this, it is advisable for people to work with their financial advisors to consider options for staying below various target ranges that trigger increased Medicare premiums. One dollar over a given income bracket can force one into a higher Medicare premium bracket, and once the tax return is filed, the Medicare premiums based on it will be in place for a full year.