Does Investment Income Affect Medicare?

If you’re like many people, you’re probably wondering what your Medicare costs will be. It’s helpful to prepare ahead of time to know what to expect. However, your exact costs with Medicare depend on various factors, including the different aspects of your income. So, does investment income affect Medicare? The short answer is yes.

The Basics

It’s helpful to get to know Medicare before understanding how investment income affects Medicare. The Medicare program has two main parts: Part A and Part B. Medicare Part A and Part B are the foundation of your Medicare benefits as they provide inpatient and outpatient coverage. There are two other parts of Medicare. Part C is another term for the Advantage plan program, while Part D covers retail prescription medications.

Typically, Part A is $0 for many people who have enough word credits from over the years. Advantage plans also tend to have $0 or low monthly premiums in exchange for higher out-of-pocket costs.

However, everyone is required to pay a monthly premium for Part B. That standard premium is $170.10 in 2022, but you can be charged extra if your earnings are above a certain level. The same is true if you have a Part D plan as well. Each Part D plan has a monthly premium that varies from plan to plan. If your income is higher than a certain amount, your Part D premium can be higher, like Part B.

IRMAA Charge

This higher charge for Part D and Part B premiums is referred to as an Income-Related Monthly Adjustment Amount (IRMAA) charge. The IRMAA charge can surprise many people, so it’s good to know it’s a possibility ahead of time.

How is IRMAA determined?

Social Security looks at your Modified Adjusted Gross Income (MAGI) reported in your IRS tax form from two years before to determine if you’ll have a higher Part D and Part B premium.

For example, in 2022, Social Security looks at your IRS tax return from 2020. In 2023, Social Security will refer to your 2021 IRS tax return to see if you will owe higher premiums based on your MAGI. Social Security should send you a letter notifying you of the extra charge in the mail.

Does investment income count towards MAGI?

Yes, your MAGI includes investment income. Your MAGI can also include pension income, certain deductions, capital gains, and more.

How much is the IRMAA charge?

There are five different income levels with IRMAA. The amount you pay for IRMAA depends on which of the five levels you fall into and whether you filed an individual or a joint tax return.

For example, if you filed a joint tax return in 2020 with an income between $182,000 and $228,000, your Part B premium would be $238.10 in 2022. If you have a Part D plan or an Advantage plan with drug coverage, you will pay $12.40 in addition to your plan’s premium.

IRMMA Appeal

If Social Security charges you a higher premium, but you disagree with the determination, you have the right to submit an IRMAA appeal. The IRMAA appeal form, also known as form SSA-44, can be found online through the Social Security website.

However, you only have 60 days from the date you receive the IRMAA letter to submit the appeal, so be sure to turn the form in as soon as possible.

Life-Changing Events

Some people don’t make as much money in retirement compared to two years before. To prove this to Social Security, you must provide documentation that you’ve had a Life-Changing Event.

These Life-Changing Events are outlined in the appeal document. However, you will likely use the Work Stoppage or Reduction event, meaning you or your spouse no longer work or have retired.

Final Thoughts

The bottom line is, yes, investment income does affect Medicare Part D and Part B premiums. You may consider calculating an estimate of your MAGI from two years before to help prepare for any additional IRMAA charges.