Medicare costs are calculated through two separate systems: payroll taxes you pay during your working years, and premiums you pay once you’re enrolled. The payroll tax is a flat 1.45% of every dollar you earn, with no income cap. Premiums vary by part and can increase based on your income, when you enrolled, and whether you delayed signing up.
The Payroll Tax That Funds Medicare
Every paycheck you receive has a Medicare tax withheld at 1.45% of your gross wages. Your employer pays a matching 1.45%, bringing the total contribution to 2.9% of your earnings. If you’re self-employed, you pay the full 2.9% yourself. Unlike Social Security tax, which stops applying after a certain income level, there is no wage cap for Medicare tax. Every dollar you earn is subject to it.
Higher earners pay an additional 0.9% Medicare tax on income above certain thresholds. For single filers, that kicks in at $200,000. For married couples filing jointly, the threshold is $250,000 (or $125,000 if married filing separately). Your employer withholds this extra tax once your wages pass $200,000 in a calendar year, regardless of your filing status. There’s no employer match on this additional tax.
These payroll taxes fund Part A, the hospital insurance portion of Medicare. If you or your spouse paid Medicare taxes for at least 10 years (40 work credits), you get Part A premium-free when you turn 65. Fewer years of work means you’ll pay a monthly premium: $311 or $565 per month in 2025, depending on how many years of Medicare taxes are on your record.
How Part B Premiums Are Set
Part B covers doctor visits, outpatient care, and preventive services. Unlike Part A, everyone pays a monthly premium for Part B. The standard amount is recalculated each year by the Centers for Medicare and Medicaid Services based on projected program costs. Most enrollees pay the standard premium, which gets deducted directly from their Social Security check.
A provision called “hold harmless” prevents your Social Security payment from shrinking due to a Part B premium increase. To qualify, you need to be receiving Social Security benefits and have your Part B premium deducted from those benefits. This protection doesn’t apply if you’re enrolling in Part B for the first time, if you pay income-related surcharges, or if Medicaid pays your premium.
Income-Related Surcharges (IRMAA)
If your income is above a certain level, Medicare adds a monthly surcharge to both your Part B and Part D premiums. This is called the Income-Related Monthly Adjustment Amount, or IRMAA. For 2025, here’s how it breaks down for Part B:
- Individual income up to $106,000 (joint up to $212,000): no surcharge
- $106,001 to $133,000 (joint $212,001 to $266,000): $74.00 per month extra
- $133,001 to $167,000 (joint $266,001 to $334,000): $185.00 per month extra
- $167,001 to $200,000 (joint $334,001 to $400,000): $295.90 per month extra
- $200,001 to $499,999 (joint $400,001 to $749,999): $406.90 per month extra
- $500,000 or more (joint $750,000 or more): $443.90 per month extra
Part D prescription drug coverage has its own IRMAA using the same income brackets, with surcharges ranging from $13.70 to $85.80 per month.
The income used isn’t from this year. Medicare uses your modified adjusted gross income from your tax return two years prior. So your 2025 IRMAA is based on your 2023 tax return. This two-year lookback catches people off guard, especially if they had a one-time spike in income from selling a home or cashing out investments.
Appealing Your IRMAA
If your income has dropped significantly since that two-year-old tax return, you can request a reduction. Qualifying life-changing events include marriage, divorce, death of a spouse, loss of income-producing property, and loss of work. You submit Form SSA-44 to Social Security, either online, by fax, or by mail. If you filed an amended tax return that changed your income for the relevant year, you can call Social Security directly to have your IRMAA recalculated.
How Part D Drug Coverage Costs Work
Part D premiums vary by plan since private insurers set their own rates. However, Medicare uses a national base beneficiary premium ($38.99 in 2026) as a reference point for calculating penalties and adjustments. Your actual monthly premium depends on which plan you choose, plus any IRMAA surcharge if your income is high enough.
Late Enrollment Penalties
Delaying your Medicare enrollment when you’re first eligible triggers permanent penalties that get added to your monthly premiums. These aren’t one-time fees. For most people, they last as long as you have Medicare coverage.
Part A penalty: If you have to buy Part A and don’t sign up when first eligible, your premium increases by 10%. You pay this penalty for twice the number of years you went without coverage. So if you delayed two years, you’d pay the higher premium for four years.
Part B penalty: The premium increases 10% for each full 12-month period you were eligible but didn’t enroll. Delay two years, and you’ll pay 20% more for your Part B premium for the rest of the time you have Part B. This penalty is permanent.
Part D penalty: This one adds 1% of the national base beneficiary premium for each full month you went without creditable drug coverage. If you went 18 months without coverage, for example, your penalty would be 18% of $38.99 (about $7 per month), rounded to the nearest ten cents, added to your Part D premium permanently. The penalty applies if you go 63 or more consecutive days without creditable prescription drug coverage.
Special enrollment periods can protect you from these penalties. If you had employer-sponsored coverage that qualifies as creditable, for instance, you typically won’t face a penalty for the period that coverage was in place.