Q&A on Medicare Health Insurance Premiums and Taxes
Taxable income has consequences.
- It causes income taxes.
- And it causes you to pay either more or less for Medicare.
- It boils down to this: there’s always a need to reduce your taxable income.
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 or an owner of a pass-through business entity (LLC, partnership, or S corporation).
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). But 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
|above $91,000 and up to $114,000
||above $182,000 and up to $228,000
|above $114,000 and up to $142,000
||above $228,000 and up to $284,000
|above $142,000 and up to $170,000
||above $284,000 and up to $340,000
|above $170,000 and less than $500,000
||above $340,000 and less than $750,000
|$500,000 or above
||$750,000 or above
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.
If you would like to discuss how to reduce your Medicare premiums, please contact me.