By now, all Medicare enrollees should have received Medicare's official notice of their individual 2019 Part B premiums.

(For details about how Part B premiums are computed for those about to turn 65 and the announcement and explanation of rate increases on our 2019 Medicare Premiums, read How to Calculate Medicare Costs and 2019 Medicare Premiums.)

A MOAA member recently contacted me with questions about his Part B premium calculation, specifically the addition of tax-free interest to his Modified Adjusted Gross Income (MAGI) and whether VA disability compensation and Combat-Related Special Compensation (CRSC) were added to MAGI - a topic I want to share with a wider audience.

Tax-free interest, while exempt from federal taxes, is added back to your adjusted gross income (AGI) to come up with your MAGI. Specifically, Internal Revenue Code ((d)(2)(B)) states the MAGI is increased by:

• Any amount excluded from gross income Section 911 (foreign earned income and housing costs for qualified individuals)
• Any amount of interest received or accrued by the taxpayer during the taxable year, which is exempt from tax
• Any amount equal to the portion of the taxpayer's Social Security benefits (as defined in Section 86 (d)), which is not included in gross income under Section 86 for the taxable year.

The IRS phases out credits and deductions as your income increases. By adding MAGI factors back to your AGI, the IRS determines how much you really earned.

VA disability compensation and CRSC both are tax-free but are considered disability payments - not income - and play no part in your gross income, AGI or MAGI. The IRS has no insight into the receipt of these benefits as the VA and the military service that cuts a CRSC check do not report these payments to the IRS.