Ask the Expert: Using MAGI to determine Medicare surcharges
Unfortunately, taking my required minimum distribution from retirement accounts puts me over the Medicare income threshold for a standard premium. I'm stuck paying Medicare surcharges. I had been informed that Medicare surcharges are based on my gross income. In your Jan. 29 column, you say that it's based on Modified Adjusted Gross Income (MAGI). My question: Is that "adjusted gross income," which is "gross income" before any deductions?
MAGI is Adjusted Gross Income (AGI) — not yet reduced by the standard deduction or itemized deductions — plus some income that's not included in AGI. For many taxpayers, MAGI and AGI are the same.
Confusingly, there’s no line for MAGI on your federal tax return. That’s because the definition of MAGI depends on which government program you're talking about.
Medicare premiums, Medicaid eligibility and the size of your potential tax credits when you buy a policy on a health insurance exchange — these are all based on MAGI. For each of these programs, MAGI starts with your AGI. (AGI is on Line 11 of Form 1040.) Then various types of income are added (or, in the case of Medicaid, subtracted) to calculate your MAGI for that particular program.
For Medicare premiums, MAGI is AGI plus tax-exempt interest income; interest from U.S. savings bonds used to pay higher-education tuition and fees; income earned abroad by a U.S. citizen that was excluded from gross income; and income from sources within Guam, American Samoa, the Northern Marina Island or Puerto Rico not otherwise included in AGI.
If you’re single with MAGI over $97,000, or married filing jointly with MAGI over $194,000 you’ll pay a Medicare premium surcharge.
The bottom line
Medicare annual surcharges are determined by your Modified Adjusted Gross Income, based on the tax return you filed two years earlier.
