Taxable income impacts Medicare premiums

Many people feel that once they reach age 65 they will no longer have any expense related to healthcare coverage.

Medicare has four parts, A through D.

Medicare part A covers hospitalization, part B is basic medical coverage, part C is optional and extends the medical coverage offered in part B through a private carrier while part D is prescription drug coverage.

Medicare eligibility begins at age 65.

If you paid Medicare taxes for 30 quarters (approximately seven and a half years) or less, your monthly premium for part A is $437; for 31 through 39 quarters paid,the premium is $240; and if you paid Medicare taxes for 40 quarters (10 years) you do not have a premium for part A.

Part A generally covers inpatient care in a hospital, skilled nursing facility care, inpatient care in a skilled nursing facility, hospice care and home health care. Medicare coverage is based on three main factors including federal and state laws, national coverage decisions about whether something is covered by Medicare and local coverage decisions made by companies in each state that process claims for Medicare. These companies decide whether something is medically necessary and should be covered in their area.

Medicare part B premiums are determined by income level and filing status. 2019 Medicare part B premiums are determined by 2017’s income level and filing status. The table below shows the applicable monthly premiums that will be charged to a Medicare recipient.

You can see that the table is organized by three filing statuses; individual, married filing jointly and married filing separately. Taxpayers with a filing status of head of household would also use the individual tax return column.

In general, the higher your income the higher your monthly premium will be. You are either single or married, but if you are married you have the choice of filing jointly or separately. Looking at the married filing separately column you notice that it only has three income levels rather than the six levels for the other filing statuses.

Yearly income in 2017, filing individual return. Yearly income in 2017, filing joint return. Yearly income in 2017, filing married separate return.

When filing taxes, a good preparer will look to see whether it is more advantageous to file as married filing jointly or as married filing separately. The tax software will help in evaluating the tax consequences of this decision. However, the tax software generally does not factor in the impact of the Medicare Part B premium in the decision to file jointly or separately. Since there may be up to a $325 ($3,900 annually) difference in monthly premiums between filing jointly or separately. It may be important to include Medicare costs in the filing status decision.

Part B has a deductible of $185 per year in 2019. After your deductible is met you typically are responsible for 20% of the Medicare-approved amount for items such as outpatient therapy, most doctor approved services, and durable medical equipment. Managing your income and planning accordingly can have a significant impact not only on your tax consequences but on your Medicare Part B premiums as seen above.

As the year begins to wind down it may be beneficial to take steps relative to receipt of your income, capital gains and investments to consider the impact of a change in income on the Medicare premiums that will be charged two years from now.