The majority of Medicare beneficiaries qualify for Medicare Part A coverage at no cost, depending their contribution through taxes while working over a period of time. For those who have paid Medicare taxes for under 40 quarters, a monthly premium is charged. In 2020, the premium may be as low as $252 for those who paid Medicare taxes for 30 to 39 quarters or as high as $458 if taxes were paid for under 30 quarters. It is not tied to income level. Conversely, income is taken into account to assess each beneficiary’s monthly premium for Part B.
Premiums for Medicare Part B insurance
At the end of each calendar year, Medicare announces the Part B standard premium amount to be effective the first of the following year. For 2020, the rate is $144.60 per month. Medicare charges higher premiums to people across different income ranges. This is referred to as an Income Related Monthly Adjustment Amount (IRMAA). The basis for where you fall within these ranges is your tax return two years prior to the effective date of the new rate. As an example, the IRS provides Social Security with 2018 tax return data on which to evaluate individual premiums due for Medicare coverage in 2020. When you apply for Medicare, you are not required to provide copies of your tax return. As Medicare is a U.S. government program, the agency already has that information.
Premiums corresponding to income levels
The income ranges differ depending on whether the taxes are filed individually, jointly or married but filing separately. The income amount used for this purpose is modified adjusted gross income (MAGI). Adjusted gross income is income after deductions. Modified adjusted gross income adds some of these deductions back.
The 2020 standard rate applies if you fall into the following income ranges for the tax year 2018:
- $87,000 or less if you filed an individual tax return.
- $174,000 or less if you filed a joint tax return.
- $87,000 or less if you were married and filed separately.
The impact of the income related monthly adjustment amount is a higher premium of $202.40 if MAGI falls within the following ranges within these filing models:
- Individual: Above $87,000 up to $109,000.
- Joint: Above $174,000 up to $218,000.
- Married and filing separately: Not applicable
Following is the sliding scale for the highest Part B premium, which is $491.60 in 2020:
- Individual: $500,000 and above.
- Joint: $750,000 and above.
- Married but filing separately: $413,000 and above.