High-Income Seniors Hit With Medicare Surcharge

After several years of being retired, I had a big bump-up in income in 2009 when I exercised stock options. That triggered a high-income surcharge for my Part B and Part D Medicare premiums this year. Does this mean I will have to pay the high-income surcharge next year, too?

Not necessarily. The 2012 high-income surcharge for both Medicare Part B, which covers doctor visits and outpatient services, and Medicare Part D, which covers prescription drug costs, is based on your 2010 income. That’s the latest tax return the IRS has on file. If the increase in your income in 2009 was due to a one-time event and your adjusted gross income in 2010 dropped below the threshold that triggers the high-income surcharge, you won’t have to pay the extra charges next year.

The surcharges for Medicare Parts B and D kick in when you annual adjusted gross income (plus tax-exempt interest income) tops $85,000 if you are single or $170,000 if you are married filing jointly. If your 2010 income is below those thresholds, your Medicare Part B premiums will drop to the standard $99.90 monthly level in 2012 and you will pay no surcharge for Part D prescription drug coverage.

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In 2012, high earners will pay from $139.90 to $319.90 per month per person, depending on their income level, for Medicare Part B coverage. They will also pay extra for Medicare Part D prescription drug coverage, ranging from $11.60 to $66.40 per month, on top of their regular premiums. See Medicare Premiums to Decrease for Some for details about the 2012 premiums.

Incomes only slightly higher than the threshold at which surcharges kick in can trigger a significant premium boost -- costing you an extra $40 per month above the standard premium for Part B if your income falls in the $85,001 to $107,000 category if you are single or in the $170,001 to $214,000 category if you are married filing jointly. That adds up to an extra $480 per year in premiums per person, or $960 per year for a married couple, just for Part B. Add an extra $139 per person for Part D for the year. So reducing your modified adjusted gross income below those thresholds could save you a lot of money. In my next column, I’ll outline some strategies for reducing your current income to prevent high-income surcharges.