Medicare Part B is funded primarily by federal general revenues, which cover about 72% of the program’s costs. Beneficiary premiums make up roughly 26%, and the remaining 2% comes from interest on trust fund investments and other minor sources. Unlike Part A, which relies on dedicated payroll taxes, Part B draws the bulk of its money directly from the federal government’s general tax base.
The Three Funding Sources
The largest share of Part B funding comes from general revenues, meaning the income taxes, corporate taxes, and other federal taxes that flow into the U.S. Treasury. Congress authorizes transfers from this general pool into the Supplementary Medical Insurance (SMI) Trust Fund, which is the account that holds and distributes Part B money. This is a key distinction from Part A: there is no dedicated “Part B tax” on your paycheck. Instead, all federal taxpayers collectively subsidize the program whether they’re enrolled in Medicare or not.
Beneficiary premiums are the second-largest source. Every person enrolled in Part B pays a monthly premium, which is typically deducted automatically from their Social Security check. For 2025, the standard monthly premium is $185.00. Together, these premiums account for about a quarter of total Part B revenue.
The remaining sliver, around 2%, comes from interest earned on the trust fund’s investments and other miscellaneous income, including gifts and bequests made to the fund.
How the SMI Trust Fund Works
All Part B money flows into and out of the Supplementary Medical Insurance Trust Fund, managed by the U.S. Treasury. Congress sets the funding levels, premiums are deposited, and the Secretary of Health and Human Services certifies how much needs to be paid out to cover physician visits, outpatient services, preventive care, and some home health visits. Administrative costs for running the program also come out of this fund.
Because roughly three-quarters of Part B’s budget comes from general revenues that Congress authorizes each year, the trust fund cannot run out of money the way Part A’s Hospital Insurance Trust Fund theoretically can. Congress simply appropriates what’s needed. This also means Part B spending directly affects the federal budget deficit: when Part B costs rise, either taxes go up, other spending gets cut, or the government borrows more.
What You Pay: Standard Premiums
Most beneficiaries pay the standard Part B premium of $185.00 per month in 2025. This amount is recalculated annually based on projected program costs. After paying your monthly premium, you also face an annual deductible before Part B starts covering its share of your medical bills. Once you meet that deductible, Part B generally covers 80% of approved services, and you pay the remaining 20%.
Higher Premiums for Higher Earners
If your income exceeds certain thresholds, you pay more than the standard premium through an Income-Related Monthly Adjustment Amount, commonly called IRMAA. This surcharge is based on your modified adjusted gross income from your tax return two years prior. For 2025, the brackets work like this for individual filers:
- $106,000 or less: $185.00 per month (standard, no surcharge)
- $106,001 to $133,000: $259.00 per month
- $133,001 to $167,000: $370.00 per month
- $167,001 to $200,000: $480.90 per month
- $200,001 to $499,999: $591.90 per month
- $500,000 or more: $628.90 per month
For joint filers, these thresholds are roughly doubled. Someone filing jointly with income at or below $212,000 pays the standard $185.00. At the top bracket, joint filers earning $750,000 or more pay $628.90 each. Married individuals who file separately face a compressed scale with steeper jumps: income above $106,000 immediately triggers a $591.90 monthly premium.
IRMAA affects a relatively small percentage of Medicare beneficiaries, but it represents a meaningful piece of the premium revenue that flows into the trust fund. The surcharges can more than triple what a high earner pays compared to the standard amount.
Late Enrollment Penalties
Part B also collects additional revenue through late enrollment penalties. If you don’t sign up for Part B when you’re first eligible and don’t qualify for a special enrollment period (for example, because you had employer coverage), you’ll pay a permanent surcharge on your premium. The penalty is 10% for every full 12-month period you could have enrolled but didn’t.
This penalty isn’t a one-time fee. It’s added to your monthly premium for as long as you have Part B, which for most people means the rest of their life. Someone who delayed enrollment by two years, for instance, would pay 20% more than the standard premium every month going forward. Using 2026’s standard premium of $202.90, that two-year delay adds $40.58 per month, bringing the total to $243.50. The penalty rises with the standard premium each year, so the dollar amount grows over time even though the percentage stays fixed.
Why Part B Funding Differs From Part A
Part A (hospital insurance) has its own dedicated funding stream: the 1.45% payroll tax that employees and employers each pay on wages, plus an additional 0.9% tax on high earners. That money goes into a separate Hospital Insurance Trust Fund, and when spending outpaces revenue, the trust fund’s reserves shrink.
Part B has no equivalent payroll tax. Its reliance on general revenues means it competes with every other federal priority for funding. It also means Part B costs are more insulated from demographic shifts like the aging population in one narrow sense: Congress can always authorize more money. But in a broader sense, the growing Part B price tag puts pressure on the entire federal budget. As healthcare costs rise and more people age into Medicare, the general revenue contribution to Part B continues to climb, making it one of the fastest-growing components of federal spending.