Advanced Underwriting Consultants

Ask the Experts – February 10

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: Can the receipt of tax-exempt municipal bond interest affect an individual’s Medicare Part B premiums?

Answer: Yes. Higher-income individuals pay higher Medicare premium amounts. For these purposes, “income” refers to one’s modified adjusted gross income (MAGI), which is simply adjusted gross income increased by tax-free interest. Therefore, even though municipal bond interest is tax-exempt, it may nevertheless cause certain individuals to pay more in Medicare premiums.

Note, though, that in determining an individual’s 2014 increase in Medicare premiums, the Social Security Administration uses the individual’s most recent Federal tax return provided by the IRS. Generally, this will mean the tax return filed in 2013 for the 2012 tax year. Therefore, tax-exempt interest earned in 2014 (or even 2013) will generally not affect one’s Medicare premiums for this year.

Here’s a helpful guide published by the Social Security Administration that helps explain the Medicare premium rules for higher-income individuals more thoroughly.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.