How to Avoid the Medicare Surcharge

If your income is too high, you could pay a lot more for your monthly Part B premiums. But you may be able to get the surcharge reduced.

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I am trying to keep my income below $85,000 so I will not have to pay the Medicare high-income surcharge. How is income defined for Medicare premiums, and how much will I pay if I can’t reduce my income?

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Even though most people will pay $104.90 per month for Medicare Part B premiums in 2015, your monthly bill could be $146.90 to $335.70 per person if you’re subject to the high-income surcharge. This happens if your adjusted gross income (plus tax-exempt interest) is higher than $85,000 if you’re single or $170,000 if you’re married filing jointly.

The Social Security Administration uses your most recent tax return on file (generally 2013 for 2015 premiums) to determine whether you’re subject to the surcharge. But you may be able to get the surcharge reduced if your income has dropped since then because of certain life-changing events, such as marriage, divorce or the death of a spouse, or if you retired or reduced your work hours.

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In that case, you can ask Social Security to use your 2014 income instead. Estimate your income for 2014 (and submit your tax return when completed), and provide evidence of the qualified change, such as a marriage or death certificate, signed statement of retirement from your employer, or pay stubs showing your reduced income. See Medicare Premiums: Rules for Higher-Income Beneficiaries (opens in new tab).

You can’t contest the surcharge just because your income was unusually high in 2013 for other reasons, such as if you converted a traditional IRA to a Roth. But you still have time to reduce your 2014 income by making pretax contributions to your 401(k) or tax-deductible contributions to an IRA, selling losing investments, delaying self-employment income or spending more money on business expenses. That may help you avoid the surcharge for 2016 (or reduce your premiums for 2015 if you had a life-changing event). See 12 Smart Year-End Tax Moves to Make Now for more ideas.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.