Can You Explain Medicare MAGI?

Picture of calculating Medicare Adjusted Gross Income or MAGI

Medicare’s Modified Adjusted Gross Income or MAGI plays a crucial role in determining the premiums beneficiaries pay for Medicare Parts B and D. If at a certain level, it triggers a surcharge to your Medicare premiums.

It is important to understand that MAGI is distinct from Adjusted Gross Income (AGI), which is calculated on tax returns submitted to the Internal Revenue Service (IRS). To comprehend these distinctions, let’s delve into the calculation methods.


AGI is computed by deducting specific allowances from an individual’s total income, encompassing contributions to retirement accounts, student loan interest, and alimony payments.

MAGI add backs certain deductions, such as tax-exempt interest income and foreign earned income exclusions.

Ten Major Differences

  1. Tax-exempt interest income: Not included in AGI, tax-exempt bond interest is added back in for MAGI.
  2. Foreign earned income exclusion: While excluded from AGI, this income may be added back in for MAGI if earned abroad.
  3. Social Security benefits: Excluded from AGI, Social Security benefits are considered in MAGI.
  4. Capital gains: Part of AGI but may or may not be included in MAGI depending on income levels.
  5. Roth IRA distributions: Excluded from AGI, but MAGI inclusion depends on individual income.
  6. Income from rental properties: Included in AGI but might be excluded from MAGI based on income.
  7. Deductions for self-employment taxes: Included in AGI, but MAGI treatment depends on income.
  8. Alimony payments: Deducted from AGI, but added back in for MAGI purposes.
  9. Traditional IRA contributions: Deducted from AGI, but MAGI inclusion varies with income.
  10. Student loan interest deduction: Included in AGI, but may not be in MAGI depending on income.

One you calculate your Medicare Modified Adjusted Income, it is used to determine the Income-Related Monthly Adjustment Amount (IRMAA), an additional premium for Medicare Parts B and D applicable to beneficiaries surpassing income thresholds. In 2023, this Medicare threshold is $97,000 for individuals and $194,000 for married couples filing jointly. Beneficiaries exceeding these limits incur a surcharge on top of regular Part B and/or Part D premiums.

In conclusion, comprehending income calculations for Medicare is pivotal for beneficiaries in planning for Medicare premiums. This knowledge is invaluable in avoiding unexpected surcharges. Consulting with a Fee-Only professional adviser, well-versed in Medicare calculations, adds a layer of expertise to financial planning, aiding beneficiaries in navigating the intricacies of Medicare premiums effectively.

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