Congress added Medicare health insurance to Social Security benefits in 1965. The original provisions offered coverage to people aged 65 and older, plus some younger individuals with disabilities. There are currently other eligible groups, which have been added over time.
Medicare consists of Part A, which covers inpatient hospital care, nursing facilities, and hospice treatment. Most people who have worked ten years or more do not pay a premium for Medicare Part A. Medicare Part B covers doctor’s services, outpatient care, preventive care, and medical supplies. Many people pay a monthly premium for their Part B coverage. Part D was added in 2003 and provides prescription drug benefits. The legislation that added these benefits also created Medicare Advantage Plans, sometimes called Part C plans.
What does Medicare Part B cost?
The standard monthly charge for Medicare Part B in 2022 is $170.10. This amount will drop to $164.90 in 2023. However, there are penalties for some people who could sign up at age 65 but delay doing so. If you incur such a penalty, you will continue to pay it for your lifetime (for a Part B penalty). Coverage costs for Part D prescription drugs vary depending on whether the enrollee has a specific drug prescription program or enrolls in a Part C Medicare Advantage Plan. All program parts have deductibles to pay before the policy starts to cover your costs.
Who pays more than the standard premium for Part B?
If your MAGI (modified Adjusted Gross Income) is above a specified amount, you will pay a higher monthly premium for Medicare Part B:
If your yearly income in 2020 (for what you pay in 2022) was | You pay each month (in 2022) |
File individual tax return | File joint tax return | File married & separate tax returns |
$91,000 or less | $182,000 or less | $91,000 or less | $170.10 |
above $91,000 up to $114,000 | above $182,000 up to $228,000 | Not applicable | $238.10 |
above $114,000 up to $142,000 | above $228,000 up to $284,000 | Not applicable | $340.20 |
above $142,000 up to $170,000 | above $284,000 up to $340,000 | Not applicable | $442.30 |
above $170,000 and less than $500,000 | above $340,000 and less than $750,000 | above $91,000 and less than $409,000 | $544.30 |
$500,000 or above | $750,000 or above | $409,000 or above | $578.30 |
Are capital gains included in Modified Adjusted Gross Income?
Yes, capital gains are part of the MAGI calculation. For many taxpayers, the MAGI is similar to the AGI (adjusted gross income), but it can be higher, depending on your circ*mstances. MAGI is your AGI (line 11 of Form 1040) plus tax-exempt interest income. Add in any deductions you took for IRA contributions and taxable Social Security payments, plus deductions for student loan interest, excluded foreign income, deductions for tuition and fees, plus half of your self-employment tax (if applicable.)
MAGI also determines whether you owe the NIIT (Net Investment Income Tax).
Net Investment income is comprised of income from investment assets. That includes stocks, mutual funds, rental and business income, royalties, mineral rights, annuities, and dividends. NII also includes gains from selling a capital asset like real estate. The amount you pay is complicated and depends on certain thresholds and the activity from which the income is derived.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
Examples are hypothetical and for illustrative purposes only. Withdrawal strategies should take into account the investment objectives, financial situation and particular needs of the individual.
FAQs
Answer: A big-enough capital gain can trigger Medicare's income-related adjustment amount, which are surcharges on your Part B and Part D premiums.
Does capital gain count as income for Medicare premiums? ›
Capital gains are a type of income, so they may affect how much you pay for Medicare coverage. Fortunately, the IRS allows homeowners who sell their primary residence to exclude up to $250,000 of the gain from their income ($500,000 if married filing jointly).
Are capital gains subject to Medicare tax? ›
Examples of investment income that is subject to the NIIT include dividends, interest, passive income, annuities, royalties and capital gains. The 3.8% tax applies to the lesser of either your net investment income or the amount by which your MAGI exceeds $200,000 (or $250,000 for joint filers).
What is counted as income for Medicare? ›
We use the most recent federal tax return the IRS provides to us. If you must pay higher premiums, we use a sliding scale to calculate the adjustments, based on your “modified adjusted gross income” (MAGI). Your MAGI is your total adjusted gross income and tax-exempt interest income.
What income affects Medicare premiums? ›
If you file an Individual Tax Return or Joint Tax Return
| Filing Individual Tax Returns | Filing Joint Tax Returns | Total monthly Part B premium |
|---|
| $103,000 or less | $206,000 or less | $174.70 |
| Over $103,000 & Up to $129,000 | Over $206,000 & Up to $258,000 | $244.60 |
| Over $129,000 & Up to $161,000 | Over $258,000 & Up to $322,000 | $349.40 |
3 more rowsCapital gains are generally included in taxable income, but in most cases, are taxed at a lower rate.
Does capital gain show as income? ›
It is included in your annual taxable income and taxed at your marginal tax rate. Capital gains only apply when you sell an asset at a profit.
What income is subject to Medicare tax? ›
Medicare is funded by a payroll tax of 1.45% on the first $200,000 of an employee's wages. Employees whose wages exceed $200,000 are also subject to a 0.9% Additional Medicare Tax on top of the 1.45%. Employers also pay a 1.45% tax on their employee's wages. They do not pay the additional tax.
Are capital gains included in adjusted gross income? ›
Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take. Gross income includes wages, dividends, capital gains, business and retirement income as well as all other forms income.
How do I avoid paying 3.8% Medicare surtax? ›
Look for ways to minimize your AGI. The lower your AGI (the number at the bottom of the TAX-FORM 1040) the lower the amount of your income will be subject to the 3.8% surtax. Need another reason to contribute to your retirement plan? Making contributions to your 401k, 403b or pension will lower your AGI.
The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.
How does Medicare verify income? ›
Medicare premiums are calculated using your Modified Adjusted Gross Income (MAGI) from your tax return for two years prior to the current year. For example, if you're paying premiums in 2024, these will be based on your 2022 MAGI.
What is not counted as income? ›
Nontaxable income won't be taxed, whether or not you enter it on your tax return. The following items are deemed nontaxable by the IRS: Inheritances, gifts and bequests. Cash rebates on items you purchase from a retailer, manufacturer or dealer.
Do capital gains affect Medicare premiums? ›
Answer: A big-enough capital gain can trigger Medicare's income-related adjustment amount, which are surcharges on your Part B and Part D premiums. As you note, there's a two-year delay between the higher income on your tax returns and higher premiums.
Does selling a house affect Medicare premiums? ›
The long and short of it is this: selling your primary residence generates taxable income and taxable income affects both Social Security and Medicare benefits.
What income is included in Magi for Medicare premiums? ›
MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. For many people, MAGI is identical or very close to adjusted gross income. MAGI doesn't include Supplemental Security Income (SSI).
What income is used to determine Medicare premiums in 2024? ›
If you earn more than $103,000 ($206,000 if you're married), you pay higher monthly rates for both Medicare Part B and D. For 2024, your costs for Medicare Parts B and D are based on the income on your 2022 tax return.
Is capital gain considered other income? ›
These capital gain distributions are usually paid to you or credited to your mutual fund account, and are considered income to you.
Do capital gains count toward ACA subsidy? ›
Basically, the higher the MAGI, the lower the premium subsidy received. So, if someone receiving insurance through the Health Insurance Marketplace sells a house or other capital asset property in a given year, the capital gains on that sale are part and parcel of the modified adjusted gross income.
