How Much Can I Make Before I Have to Pay Extra for Medicare?

Medicare offers vital health coverage for Americans aged 65 and over. But higher-income seniors pay more for certain parts of Medicare based on their earnings. So what are the income limits before you’ll owe surcharges?

Medicare uses a tiered system of income brackets to determine who pays standard premiums versus extra costs. The 2023 income thresholds are:

Medicare Part B Income Limits

Medicare Part B covers outpatient care, doctor visits, tests, durable medical equipment and more. Monthly premiums for Part B are:

• $164.90 per month for individuals with incomes up to $97,000
• $230.80 for incomes from $97,001 to $123,000
• $297.70 for incomes from $123,001 to $153,000
• $394.60 for incomes from $153,001 to $183,000
• $491.60 for incomes above $183,000

For married couples, the tier thresholds are:

• $164.90 for joint incomes up to $194,000
• $230.80 for incomes from $194,001 to $246,000
• $297.70 for incomes from $246,001 to $306,000
• $394.60 for incomes from $306,001 to $366,000
• $491.60 for incomes above $366,000

So if your individual income is more than $97,000, or your joint income exceeds $194,000, you’ll pay a surcharge on your Medicare Part B monthly premium.

Medicare Part D Income Surcharges

Medicare Part D adds prescription drug coverage. The standard 2023 Part D premium is $33.20 per month. But higher earners pay the following:

• Individuals earning $97,000 or less pay the standard premium.
• Those earning $97,001-$123,000 pay an extra $12.20 per month.
• Those earning $123,001-$153,000 pay an extra $31.50 per month.
• Those earning $153,001-$183,000 pay an extra $50.70 per month.
• Those earning above $183,000 pay an extra $79.90 per month.

For married couples filing jointly, the Part D surcharges apply at:

• $33.20 standard premium for joint incomes up to $194,000.
• Extra $12.20 per month for incomes from $194,001-$246,000.
• Extra $31.50 per month for incomes from $246,001-$306,000.
• Extra $50.70 per month for incomes from $306,001-$366,000.
• Extra $79.90 per month for incomes above $366,000.

So Part D premiums can cost over double the base rate for the highest earners. The income limits for Part D match those for Part B.

Why Medicare Uses Income Brackets

Medicare calculates modified adjusted gross income (MAGI) based on your latest federal tax return. Income includes taxable wages, dividends, interest, pensions, and other earnings reported to the IRS.

This income-based tiered system aims to keep Medicare viable and affordable. Higher earners help subsidize the program for lower-income seniors. The extra premium revenue also helps fund Medicare overall.

While high incomes trigger bigger Medicare costs, even top-tier premiums still represent a fraction of private health plan rates. So coverage remains a relative bargain even for wealthier retirees.

When Will Surcharges Apply?

The income thresholds reset each year and track inflation. They are based on your latest tax return from two years prior.

For example, your 2023 Medicare premiums follow 2021 income levels reported to the IRS. If your income changes significantly after retirement, your Medicare costs will eventually align better over time.

Life events can also trigger eligibility reviews and premium adjustments:

• Gaining or losing a spouse through marriage, divorce, or death.
• Retiring and moving from wages to investment income.
• Inheriting assets that alter your income bracket.

Report major income shifts to Medicare to have premiums recalculated sooner. You can also appeal decisions if you believe your earnings were miscalculated.

Strategies to Avoid Medicare Surcharges

No one wants bigger Medicare bills eating into retirement income. Some potential steps to reduce premiums include:

• Withdraw more income before turning 65. Tap into IRAs, 401(k)s, and other accounts more aggressively while still working if possible.

• Claim Social Security strategically. Delay claiming benefits to increase future payments, which won’t count as income for Medicare.

• Manage future RMDs. Require minimum distributions from retirement accounts can drive up post-65 income. Withdraw more earlier to reduce future RMD amounts.

• Invest tax-exempt. Municipal bonds don’t increase AGI like taxable interest income.

• Donate to charity. Giving to 501(c)3 non-profits may lower your AGI and possibly your Medicare bracket.

• Seek professional advice. Discuss options with a tax pro or financial planner to map an optimal income strategy.

While there’s no way to avoid Medicare premiums completely, wise planning could potentially keep you in a lower surcharge bracket.

What Counts as Income for Medicare Premiums?

Medicare examines a variety of income sources reported to the IRS to determine your MAGI and premium tiers. Common income types included in MAGI calculations are:

• Wages, salaries, bonuses, commissions
• Self-employment and gig work earnings
• Taxable interest and dividends
• Taxable Social Security benefits
• IRA and 401(k) withdrawals
• Pension and annuity payments
• Capital gains
• Alimony
• Rental real estate income
• Royalties and patents
• Certain foreign-earned income

Meanwhile, some income types exempt from federal tax don’t factor into your Medicare premium equations:

• Inheritances and gifts
• Life insurance payouts
• Municipal bond interest
• Certain foreign income
• Reverse mortgage proceeds
• Roth IRA withdrawals
• Non-taxable Social Security benefits
• Veterans’ benefits
• Workers compensation
• Child support
• Damages from personal injury lawsuits

So premium tiers correlate closely with taxable income reported to the IRS annually. Carefully managing income sources before and after 65 can possibly help minimize Medicare surcharges.

Income Limits for Medigap Plans

One final Medicare component also uses income tiers – Medigap supplement insurance. These popular plans help cover Original Medicare out-of-pocket costs.

Some states implement income limits on who can newly enroll in Medigap after age 65:

• In New York, Medigap is restricted if income exceeds $90,000
• In New Jersey, income cannot exceed $134,300
• In Connecticut, the income limit is $138,300

These states prohibit Medigap signups for seniors above income thresholds. Lockout periods may also apply if you drop a Medigap plan and want to re-enroll later.

The Bottom Line

Higher earners do pay more for Medicare, but the program still remains affordable relative to non-subsidized insurance. Planning strategically before and after age 65 can possibly help optimize your income sources to avoid jumping into a higher premium bracket.