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Tax-free income effect the taxation of Social Security or Medicare Part B?

#1
Does tax-free income effect the taxation of social security and does tax free income effect the Medicare Part B payment fees?
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#2
Yes, tax-free income such as interest from muni bonds/ bond funds DOES affect both the taxation of Social Security benefits and the premiums on Medicare Part B and Part D.

If you use a tax software program such as TurboTax, you can create a hypothetical tax return and then use your income (and deductions, etc.) numbers both with and without tax-free interest and see how your total tax increases when you input tax-free interest. Unless your income is very low — say, just SS benefits and a little bit of tax-exempt interest — that keeps you under the dollar threshold at which SS benefits begin to be taxed, you’ll see . . .

You can also go to irs.gov and look at Publication 915 — it includes a worksheet on page 7 that you can use to estimate how much of your SS benefits will be taxable. The calculation starts with adding half of your SS benefits plus all other income including tax-exempt interest, and then goes on from there.

As for Medicare premiums, go to Medicare.gov to see the amounts of premiums/ premium increases based on your “Modified Adjusted Gross Income” (MAGI). MAGI is calculated by using the adjusted gross income on your federal tax return PLUS tax-exempt interest. For a given calendar year, your Medicare Part B and Part D premiums will be based upon your reported income on your federal tax return from 2 years prior.

Note: If you have tax-free “income” that is really a return of capital, that kind of ”income” (better described as a cash flow, rather than income) isn’t taxable and doesn’t affect the taxation of SS benefits or Medicare premiums.
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#3
QUOTE: Note: If you have tax-free “income” that is really a return of capital, that kind of ”income” (better described as a cash flow, rather than income) isn’t taxable and doesn’t affect the taxation of SS benefits or Medicare premiums.

Though return of capital does affect your future cap gains (assuming you sell the affected securities). Consequently, even ROC may affect your SS taxation and Medicare premiums, albeit in a future year (when you sell the securities) as opposed to now.
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