Medicare, a federal health insurance program for people aged 65 and older, has premiums that can be influenced by various factors. Specifically, taxes affect Medicare premiums, and understanding this relationship is crucial for effective financial planning. In this article, we’ll explore how taxes impact both Part B premiums, Part D surcharges. And how to plan ahead for changes in 2026.
How Taxes Affect Medicare Premiums
If you’re married and upper income, medicare health insurance premiums can add up to big bucks. Read on to learn more about how taxes can also affect your medicare premiums.
Part B Premiums: Tied to Income
Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and other items. Most beneficiaries pay a standard monthly premium for Part B, which is typically deducted from Social Security benefits. However, the amount you pay may be higher if your income exceeds a certain threshold.
În 2025, most people will pay the base monthly Part B premium of $185 per covered individual. But higher income individuals must pay a surcharge on top of the base premium. So, for 2025 a surcharge will apply if:
- You filed as an unmarried individual for 2023 and reported MAGI above $106,000 for that year
- Or, filed jointly for 2023 and reported MAGI above $212,000 for that year
But how do you know if your taxes will affect your medicare premiums? Well, the government uses your modified adjusted gross income (MAGI) for determination. It uses your MAGI from two years prior to determine whether you’ll pay a higher premium for Part B.
If your MAGI exceeds certain levels, you will be subject to the Income-Related Monthly Adjustment Amount (IRMAA). So, the higher your income, the higher your Part B premium will be. Since the IRMAA thresholds are adjusted annually, and if your income changes significantly, you may see fluctuations in your premium.
Part D Premiums: Income-Driven Surcharges
Medicare Part D provides prescription drug coverage from private insurance companies. And like Part B, the premiums for Part D can also be affected by your income. If your MAGI is above a certain threshold, you’ll face an additional surcharge known as the Income-Related Monthly Adjustment Amount (IRMAA) for Part D. This surcharge is applied to the base premium for your Part D plan. It is also calculated using your income from two years ago.
While Part D premiums vary depending on the drug plan you choose, the IRMAA adds a layer of complexity for higher earners. Just as with Part B, the amount of the surcharge is determined by your income. Plus, this can change each year as income levels and surcharge amounts are adjusted.
Deducting Medicare Premiums
If you’re looking to claim an itemized medical expense deduction, you might have a few options. For example, you may be able to combine premiums for Medicare insurance with other qualifying health care expenses. Another option is if your deductions equals the total qualifying expenses to the extent they exceed 7.5% of your adjusted gross income (AGI).
Planning for 2026: Potential Changes Ahead
For 2026, it’s important to understand that Medicare premiums and income thresholds are subject to change. The Medicare Trustees Report projects potential increases in Medicare Part B premiums, especially as healthcare costs continue to rise. Additionally, income thresholds for Part B and Part D surcharges could adjust, potentially affecting more beneficiaries.
For these reasons, it’s wise to keep an eye on proposed changes to tax laws and Medicare regulations. They could impact how your premiums are calculated. As tax laws evolve, particularly in relation to retirement income, your Medicare costs could also fluctuate. It’s a good idea to review your financial situation regularly and consult with The Ray Group financial advisors or our tax professionals to ensure you’re prepared for any upcoming changes.
Your 2024 tax return and 2026 Medicare premiums
Decisions reflected on your 2024 Form 1040 can affect your 2024 MAGI. And in turn, your 2026 Medicare health insurance premiums. This issue is especially relevant if you’re self-employed or an owner of a pass-through business entity. Why? Because you have more opportunities to micro-manage your 2024 MAGI at tax return time.
For example, you may choose to make bigger or smaller deductible contributions to a self-employed retirement plan. This will maximize or minimize depreciation deductions for business assets. Your 2026 Medicare health insurance premiums may seem to be an issue in the distant future. But 2026 will be here before you know it.
Conclusion
Taxes affect Medicare premiums, primarily through the IRMAA system. And it applies surcharges on Part B and Part D premiums based on your income. Higher-income beneficiaries need to plan ahead, as tax-related surcharges can increase premiums significantly. As 2026 approaches, potential changes to income thresholds and premium rates could further impact your costs. Therefore, it’s essential to stay informed and plan for those changes to help you manage your healthcare expenses effectively.
