It's possible that some people will view a Medicare surcharge as a desirable problem to have, but from the perspective of households that are required to pay additional premiums on top of their regular Medicare payments, it's an awful expenditure. There are situations when it is possible to get around the requirement.
Key Takeaways
As of March 2022, if your household has a combined income of more than $182,000 or if you are a single person with an income of more than $91,000, you will be required to pay Medicare surcharges in addition to the premiums for Part B and Part D coverage. There is another name for Medicare surcharges, which is "Income-Related Monthly Adjustment Amounts" (IRMAA). The Social Security Administration figures out your Medicare surcharges based on your modified adjusted gross income (MAGI) from the last two years. You can join a Medicare Advantage plan (Part C) or a Medigap insurance policy, or you can do some tax planning to reduce your MAGI in order to avoid paying any Medicare surcharges. These options are available to you if you want to avoid paying these surcharges.Additional Fees for Medicare
During your time in the workforce, you made contributions to Medicare. Because of federal government taxes withheld for Social Security and Medicare, approximately 15% of each paycheck you earn is never actually placed in your possession. When you reach retirement age, you'll probably be able to get those years of deductions back because you'll get full health care for a price that's almost nothing compared to what you may have paid for health insurance while you were working. There is a good chance that Original Medicare on its own will not be sufficient to pay for all of your medical expenses. A Medicare Supplement plan is something that many retirees get in order to fill up the gaps in their coverage. This results in higher healthcare costs on a monthly basis. But the usual Medicare plan will only cost most individuals $170.10 in 2022, which is a $21.60 increase over the $148.50 they paid in 2021. Because you've had money deducted from your paychecks for Medicare contributions for so long, the federal government now pays for 75% of your Part B premiums. If the combined earnings of your household on your tax return for the year 2020 were more than $182,000, or if you filed as a single person and had earnings of $91,000, you will be subject to Medicare surcharges beginning in 2022. These surcharges will be added to your normal premiums for original Medicare Part B and Part D coverage. There is another name for these fees, which is "Income-Related Monthly Adjustment Amounts" (IRMAA). IRMAA fines require a look-back period of two years.The Formula Used to Calculate Medicare Surcharges
According to the Social Security Administration (SSA), the most important number to consider is your modified adjusted gross income (MAGI) from two years ago. This indicates that the benefits you will receive for the current period will be calculated based on the income you made two years ago for the current period. The modified adjusted gross income, or MAGI, and the adjusted gross income, or AGI, will be the same for the vast majority of taxpayers. However, your MAGI could be different if you pay interest on student loans, make alimony payments, pay moving expenses, or pay for any number of other types of payments. The Social Security Administration will look at your 2020 tax return to see if you have to pay surcharges in 2022. This is done in this manner because of the fact that the levels are often set the year before, while the Social Security Administration only has access to returns from the year before that.How Much Do Your Fees Cost?
You might be able to avoid paying the additional fees, but even if you do have to pay them, there is some good news buried in these fees. To begin, the following is a breakdown of the charges as of the year 2022 for modified adjusted gross earnings for the previous two years: If you are married and make between $182,000 and $228,000 jointly or $91,000 and $114,000 on your own, your monthly premium for Medicare Part B will increase by $68 and your premium for Medicare Part D will increase by $12.40. If you are married and earning between $228,000 and $284,000 jointly, or $114,000 to $142,000 on your own, your Medicare Part B premium will increase by $170.10 per month, and your Medicare Part D premium will increase by $32.10 per month. If you are married and make between $284,000 and $340,000 jointly or $142,000 and $170,000 on your own, your monthly premium for Medicare Part B will increase by $272.20 and your premium for Medicare Part D will increase by $51.70. If you are married and earn more than $340,000 to $750,000 jointly or more than $170,000 to $500,000 as an individual, your Medicare Part B premium will increase by $374.20 per month, and your Medicare Part D premium will increase by $71.30 per month. If you are married and earn more than $750,000 jointly or more than $500,000 as an individual, your Medicare Part B premium will increase by $408.20 per month, and your Medicare Part D premium will increase by $77.90 per month. Each of the tiers has a charge that is either paid in full or not at all. To pay the greater sum, you need only be $1 closer to the next tier than you were before. There is no differentiation in price between the tiers. Because of modifications made for inflation, you should anticipate that these numbers and income criteria will shift on an annual basis. Also, remember that Medicare is always a contentious issue in political debates. Medicare laws also tend to undergo frequent revisions.How to Avoid Paying Extra Money for Medicare
If you join a Medicare Advantage plan (Part C) or a Medigap policy, you could potentially avoid having to pay some Medicare surcharges. This is possible because these plans and policies offer additional coverage. Most people would benefit from purchasing one of these policies to bridge the coverage gaps in Medicare. If you only sign up for the basic version of Medicare, you should talk to an expert about how to keep your out-of-pocket costs to a minimum. Since these Medicare surcharges are calculated based on your tax return, it is possible to engage in some tax planning to either completely avoid having to pay these surcharges or at the very least, to prevent having to move up a tier. If you anticipate having a higher income this year as a result of a one-time gain that will cause you to be ineligible for benefits because your income will be higher than the threshold allowed for such benefits, you may want to investigate the possibility of harvesting investment losses to offset the increase in income. Due to the fact that surcharges are calculated on an annual basis, you might have to pay for this year but not for the next. Consult a tax expert for advice on how to reduce your MAGI and prevent having to pay further surcharges, and work with that expert to identify ways to do so.