How Are Medicare Premiums Determined?
Medicare Part B premiums are based on the income, and the state of residence of the individual. People with an adjusted gross income (AGI) of $85,000 or more are charged up to $121.80, while those with an AGI of $214,000 or more are charged $248.40.
The Part B premium is 1.45% of the first $85,000, and 2.35% of any income above that. If an individual's AGI is between $85,000 and $107,000, they are charged 1.45% on all income, but are eligible for a tax credit on their tax return. If an individual's AGI is $107,000 or more, they are responsible for the full 2.35% premium, and cannot get a credit on their tax return.
If an individual's modified adjusted gross income is $85,000 or more, they are responsible for the full Part B premium, and are not eligible for a tax credit.
Part B premiums increased by 8% in 2017, and the 2018 Part B retiree premiums were announced in May 2017. The Part B premiums were increased from 2017 to 2018 by 8.7%, and the Part B premium income thresholds increased by 3.8%.
What is considered income in the Medicare Part B premium computation?
The Social Security Administration establishes the rules for the computation of Part B premiums. Their own online resource, the SSA Publication No. 05-10072, helps to clarify the rules for the determination of income. Their Publication No. 05-10072, "Determining the Premiums for Part B and Part D for the Elderly and Disabled," outlines the rules for determining one's income.
The rules for determining income are based on a person's tax return, and are defined by the following three types of income:
1. Taxable Income - Taxable income consists of all taxable income reported on a person's tax return. If a tax return is not filed, then an estimate of taxable income is calculated. If the person is married but files a separate return, the taxable income is determined by combining the amounts for both spouses.
2. Adjusted Gross Income - Adjusted gross income (AGI) is computed by subtracting certain allowed deductions from taxable income. The allowed deductions are:
Contributions to IRA's
Health Savings Accounts
Student loan interest
Tuition and fees
Qualified retirement plan contributions
Deductible part of self-employment tax
Self-employed health insurance
Self-employed retirement plan contributions
Self-employed qualified long-term care insurance
Self-employed health plan tax credit
Self-employed SEP, SIMPLE, and qualified plans
Excluded foreign earned income
Excluded foreign housing exclusion and foreign housing deduction
Nontaxable IRA distributions
Exclusions of interest on Series E and I savings bonds
Exclusion of U.S. savings bond interest of individuals who are residents of the Marshall Islands, Micronesia, or Palau
Exclusion of Social Security benefits
3. Alternative Minimum Taxable Income - This is the measure of taxable income for individuals who are subject to the alternative minimum tax (AMT).
How to calculate Medicare Part B premiums
Medicare Part B premium amounts are based on a person's modified adjusted gross income and their filing status. For example, here is a summary of the Medicare Part B premium amounts in 2017 for a person whose filing status is single and has a modified AGI of $85,000 (single filers use the married filing separately threshold amount if married):
Individual Filing Status 2017 Medicare Part B Premium Amount Married Filing Jointly $170.50 Head of Household $134.60 Single, Married Filing Separately $134.60
If a person's modified AGI is $85,000 or more, they are subject to the full Part B premium amount.
However, if a person's modified AGI is $107,000 or more, they are subject to the full Part B premium amount, but are also ineligible for a credit on their tax return.
If a person's modified AGI is between $85,000 and $107,000, the person is eligible for a tax credit. This tax credit is applied to the person's income tax return, and results in the person paying less in income taxes. The tax credit amount is calculated by determining the difference between the full Part B premiums for a person's filing status and the amount of Part B premiums owed by the person. The tax credit is 35% of the difference.
For example, if a person has a modified AGI of $107,000, and the full Part B premium amount for a single individual is $134.60, then the credit amount is $34.60. This results in the person only being responsible for the $25.00 difference.
What is the Medicare Part B deductible?
The deductible for Medicare Part B coverage is $183.00 in 2018. The premium for Part B coverage is $135.50 in 2018, for a total of $318.50 per month.
The Medicare Part B deductible was $166.00 in 2017, and will increase to $183.00 in 2018. The Medicare Part B premium is $134.00 in 2017, and will increase to $135.50 in 2018.
The Medicare Part B deductible is paid each year after an individual becomes eligible for Part B. The Medicare Part B deductible does not apply to people who are entitled to Part B by way of putting in 40 qualifying quarters of work, and is not part of the deductible for Medicare Part D prescription drug coverage.
The Part B deductible is adjusted annually, based on the increase in health care costs.
Medicare premiums are subject to change every year. The Centers for Medicare &