How Your Income Impacts Medicare Costs: What You Need to Know
Many people assume Medicare costs the same for everyone. In reality, your income plays a big role in what you pay. If you earn more, you may pay higher premiums. If you earn less, you may qualify for helpful cost-saving programs.
Understanding how income affects Medicare can help you plan ahead, avoid surprises, and get the most from your coverage. In this guide, you’ll learn how Medicare uses income, what counts toward your income level, and how to manage your Medicare costs effectively.
How Income Affects Medicare Premiums
Your income directly impacts the cost of Medicare Part B and Part D. These parts of Medicare use an adjustment called IRMAA, short for Income-Related Monthly Adjustment Amount. If your income is above certain limits, you pay an added charge on top of your regular premium.
Who Pays IRMAA?
As of 2024:
Individuals earning more than $103,000
Married couples earning more than $206,000
If your income falls above those thresholds, you move into a higher Medicare cost tier.
How Medicare Measures Your Income
Medicare looks at your tax return from two years ago. So your 2025 Medicare costs come from your 2023 reported income.
If your income recently dropped because of retirement, divorce, or another major event, you can request an IRMAA adjustment using form SSA-44.
IRMAA surcharges for Part B in 2025
| Income (MAGI) | Part B IRMAA Surcharge | Total Part B Premium |
|---|---|---|
| ≤ $106,000 | $0 | $185.00 |
| > $106,000 to ≤ $133,000 | $74.00/month | $259.00 |
| > $133,000 to ≤ $167,000 | $185.00/month | $370.00 |
| > $167,000 to ≤ $200,000 | $295.90/month | $480.90 |
| > $200,000 to < $500,000 | $406.90/month | $591.90 |
| ≥ $500,000 | $443.90/month | $628.90 |
IRMAA surcharges for Part D in 2025
| Income (same brackets) | Part D IRMAA Surcharge |
|---|---|
| > $106,000 to ≤ $133,000 | $13.70/month |
| > $133,000 to ≤ $167,000 | $35.30/month |
| > $167,000 to ≤ $200,000 | $57.00/month |
| > $200,000 to < $500,000 | $78.60/month |
| ≥ $500,000 | $85.80/month |
What Counts as Income for Medicare
Many people feel surprised by what Medicare includes in your income total. It’s more than wages. Here’s a simple breakdown.
Income Medicare Counts
Wages
Social Security benefits
Pension payments
Traditional IRA and 401(k) withdrawals
Interest and dividends
Capital gains
Rental income
Income Medicare Does NOT Count
Roth IRA withdrawals
Reverse mortgage payouts
Life insurance payouts
Certain gifts or inheritances
Knowing this helps you plan withdrawals and manage your taxable income more effectively.
Additional Income Factors That Impact Costs
Required Minimum Distributions (RMDs)
Once you turn 73, you must take RMDs from traditional IRAs and retirement accounts. These withdrawals add to your income and may push you into a higher IRMAA bracket. Early planning helps you avoid sudden increases.
Smart Income Planning Before Medicare
Managing your income before age 63 can reduce later Medicare costs. Some useful strategies include:
Completing Roth conversions early
Spreading out retirement withdrawals
Avoiding large, one-time income spikes
Timing capital gains across several years
These steps help keep your taxable income steady and lower your long-term Medicare premiums.
Special Rules for Married Couples
Your filing status affects your Medicare income limits. Couples filing jointly have higher IRMAA thresholds. However, IRMAA applies to each person, not the household. After one spouse passes away, the surviving spouse often moves into a different income bracket.
Tips for Managing and Reducing Medicare Costs
1. Review Your Income Yearly
Your income can change from year to year. If you retire or experience another major shift, file form SSA-44 to request an IRMAA adjustment.
2. Apply for Savings Programs
Programs like Extra Help, Medicare Savings Programs, and Medicaid can lower your premiums and out-of-pocket costs. Your local SHIP office can guide you for free.
3. Compare Plans Every Year
Medicare Advantage and Part D plans update their costs and coverage annually. Reviewing your options during the Annual Enrollment Period (October 15 – December 7) may save you hundreds.
4. Use Preventive Services
Medicare covers many preventive services at no cost, including screenings and wellness visits. Catching issues early helps you avoid expensive treatments later.
Common Income-Related Challenges for Medicare Beneficiaries
1. IRMAA Confusion
Many people feel caught off guard when they learn they owe extra premiums. Clear planning helps prevent unexpected costs.
2. Missing Out on Financial Help
Millions qualify for Extra Help, Medicaid, or Medicare Savings Programs, yet never apply. These programs reduce premiums, deductibles, and drug costs.
3. Budgeting on a Fixed Income
Even with Medicare, copays and deductibles add up. People living on fixed incomes need a plan to avoid financial strain.
4. Complex Medicare Choices
Medicare offers many plan options. However, income affects which plans make financial sense, which adds another layer to choosing confidently.
Final Thoughts
Your income plays a major role in your Medicare costs. When you understand how Medicare calculates income and how IRMAA works, you can plan smarter and avoid paying more than necessary. Whether you’re on a fixed income or adjusting after retirement, simple planning steps can help you lower your costs and maximize your benefits.
If you want guidance based on your specific income, speak with a licensed Medicare Advocate or a SHIP counselor. A little planning today can create long-term savings and peace of mind.
