How income can affect your Social Security and Medicare benefits

How income can affect your Social Security and Medicare benefits

December 19, 2013

Workers receiving Social Security benefits, and high income recipients who pay Medicare and prescription drug premiums, may be adversely affected by adjustments to their benefits.

Social Security benefit adjustments

If you work and receive Social Security benefits, your benefits may be reduced depending on your age and income. If you are full retirement age (age 66 in 2014) or older during the entire year, you may keep all your benefits no matter how much you earn. But if you are younger than full retirement age at any time during the year, there is a limit to how much you can earn before your benefits are reduced.

  • If you are under full retirement age all year in 2014, the earnings limit is $15,480. The SSA will deduct $1 from your benefits for each $2 you earned over $15,480.
  • If you reach full retirement age during 2014, the earnings limit is $41,400. The SSA will deduct $1 from your benefits for each $3 you earned over $41,400 until the month you turn 66.

Medicare and prescription drug premium adjustments

The Social Security Act requires you to pay higher premiums for your Medicare Part B (Medical Insurance) and your prescription drug coverage if your income is over a certain amount.

The base Medicare Part B Premium for 2014 is $104.90 per month. But if your income is over $85,000 in 2014, there may be an income-related monthly adjustment amount (IRMAA) deducted from your Social Security benefits.

If you have prescription drug coverage, you may also have an income-related adjustment. If your prescription drug coverage IRMAA is more than your benefit payment, you will get a separate bill from the Centers for Medicare & Medical Services.

Each year the Social Security Administration (SSA) requests your tax filing status, your adjusted gross income (AGI), and your tax-exempt interest income from the IRS for the most recent tax year. From that they determine your modified adjusted gross income (MAGI), which is your AGI plus your tax-exempt income. The MAGI is used to determine the income-related adjustments in Table 1.

These amounts are set by Medicare law for 2014 and may change when the Social Security Administration receives updated information from the IRS each year.

MAGI may include one-time only income, such as capital gains from the sale of property, withdrawals from a retirement account, or a Roth conversion. One-time income will only affect your Medicare premium for one year.

Table 1

If you filed as:With MAGI of:Part B IRMAA is:Prescription IRMAA is:
Single, Head of Household or Qualified Widow(er)$85,000.01 - $107,000.00$ 42.00$12.10
$107,000.01 - $160,000.00$104.90$31.10
$160,000.01 - $214,000.00$167.80$50.20
More than $214,000.00$230.80$69.30
Married Filing Jointly$170,000.01 - $214,000.00$ 42.00$12.10
$214,000.01 - $320,000.00$104.90$31.10
$320,000.01 - $428,000.00$167.80$50.20
More than $428,000.00$230.80$69.30
Married Filing $85,000.01 - $129,000.00$167.80$50.20
More than $129,000.00$230.80$69.30

If your tax filing status was Married Filing Separately, and you lived apart throughout the tax year, you’ll need to set up an appointment with the Social Security Administration to discuss your living arrangement, as it may lower your IRMAA.

If your MAGI has gone down at least one range in the table above due to a life-changing event, you’ll need to contact the SSA to request a new income-related adjustment reflecting your new income level. The following are considered life-changing events:

  • You married,
  • You divorced, or your marriage was annulled,
  • You became a widow or widower,
  • You or your spouse stopped working or reduced your work hours,
  • You or your spouse lost income from income-producing property due to a disaster or other event beyond your control,
  • You or your spouse experienced a schedule cessation, termination, or reorganization of an employer’s pension plan, or
  • You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy or reorganization.

You can learn more by visiting the Social Security Administration or Medicare websites at www.ssa.gov or the www.medicare.gov