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If you receive Social Security, a pension, part-time wages, or income from a retirement account, you might assume you earn too much to qualify for help with your Medicare costs. But that assumption could be costing you hundreds — or even thousands — of dollars every year. Medicare Savings Programs income types are counted in specific ways, and several common sources of retirement income are either excluded entirely or counted at a reduced amount. Understanding exactly how these programs treat different income streams could be the key to unlocking real savings on your Medicare premiums, deductibles, and copays.
What Are Medicare Savings Programs?
Medicare Savings Programs (MSPs) are state-administered programs funded jointly by states and the federal government. They help people with Medicare who have limited income and resources cover costs that Medicare itself does not fully pay. There are four levels of coverage:
- QMB (Qualified Medicare Beneficiary): The most comprehensive level, covering Part A and Part B premiums, deductibles, and copays.
- SLMB (Specified Low-Income Medicare Beneficiary): Covers Part B premiums.
- QI (Qualifying Individual): Also covers Part B premiums, with funding on a first-come, first-served basis.
- QDWI (Qualified Disabled and Working Individuals): Covers Part A premiums for certain working individuals with disabilities.
Depending on your income and resources, qualifying for any of these levels can save you a significant amount — potentially more than $2,000 per year. Income limits vary by state and are updated annually, but the programs are generally available to individuals earning under approximately $20,000 per year, with higher thresholds in some states.
How Medicare Savings Programs Count Income: The Basics
When your state Medicaid office reviews your MSP application, it looks at your countable income — not your total gross income. This distinction matters enormously for people with mixed income streams in retirement. Many income types are partially or fully excluded from the calculation, which means your actual countable income may be lower than the number on your tax return.
Each state follows federal guidelines set by the Centers for Medicare and Medicaid Services (CMS), but states also have some flexibility to apply additional exclusions or set higher income thresholds. That is why it is always worth applying, even if you are not certain you qualify.
Income from Social Security: Mostly Counted, but Not All of It
Social Security retirement benefits are counted as income for Medicare Savings Programs — but not the full amount you receive. Federal rules allow a standard exclusion of the first $20 per month from any income source, including Social Security. Some states may apply additional disregards. So if your only income is a modest Social Security benefit, the amount actually counted against the limit will be slightly less than your monthly check.
If you receive Social Security Disability Insurance (SSDI), the same general rules apply — it counts as income, subject to the same $20 general exclusion.
Pensions and Annuities: Generally Counted as Income
Income from a pension — whether from a private employer, a government job, or a union — is counted as income for Medicare Savings Programs income purposes. The same is true for annuity payments you receive on a regular basis. These are treated similarly to Social Security: they are counted, but the $20 general income exclusion may apply to your total monthly income.
If your only income sources are a Social Security benefit and a small pension, do not automatically assume the combined amount disqualifies you. Run the numbers with your state Medicaid office, or use an online eligibility screener, before giving up on applying.
Part-Time Wages: Counted, but with a Meaningful Exclusion
If you are still working part-time — whether as a consultant, a seasonal worker, or in a part-time job — your earnings count as income. However, federal rules include an earned income exclusion for wages. Generally, the first $65 per month of earned income is excluded, and then only half of the remaining amount is counted. This means someone earning a modest amount from part-time work will have significantly less than their full paycheck counted toward the MSP income limit.
For example, if you earn $300 per month from a part-time job, you would subtract $65, leaving $235. Half of that — $117.50 — would be the countable portion of your wages. That is a substantial reduction from $300, and it could make the difference in whether you qualify.
IRA and 401(k) Withdrawals: It Depends on How You Take the Money
This is one of the most misunderstood areas of Medicare Savings Programs income rules. Regular, periodic withdrawals from an IRA, 401(k), or similar retirement account are generally counted as unearned income. If you take a set amount each month, that amount is typically included in your countable income.
However, the rules around irregular or lump-sum withdrawals can vary by state. Some states may treat a one-time withdrawal differently than a recurring distribution. If you have flexibility in how and when you take retirement account withdrawals, it may be worth discussing your situation with a benefits counselor before you apply, to understand how your state counts these funds.
Rental Income: Counted, with Deductions for Expenses
If you receive rental income from a property you own, it is generally counted as unearned income. However, you may be able to deduct certain expenses — such as property taxes, maintenance costs, and insurance — before the net amount is counted. Keep records of your rental-related expenses, as they could meaningfully reduce your countable rental income.
Income That Is Typically Not Counted
Several types of income are excluded entirely from the MSP calculation under federal rules. These commonly include:
- The first $20 per month of any income (the general income exclusion)
- Supplemental Nutrition Assistance Program (SNAP) benefits
- Most home energy assistance payments (such as LIHEAP)
- Payments from certain state assistance programs
- Certain irregular or infrequent income (depending on the amount and your state)
- Income of other household members, in most cases
This list is not exhaustive, and your state may have additional exclusions. Again, this is why applying — rather than assuming — is always the right move.
Do Not Forget About Resource Limits
In addition to income, Medicare Savings Programs also look at your resources — things like bank accounts, stocks, and other assets. However, many assets are excluded, including your primary home, one vehicle, household goods, and certain burial funds. Resource limits also vary by state and year, and some states have eliminated resource tests altogether to make it easier to qualify.
How to Apply and Find Out If You Qualify
The only way to know for certain whether you qualify for Medicare Savings Programs is to apply through your state Medicaid office. The process is generally straightforward, and many states allow you to apply online, by phone, or in person. You can also get free, personalized help from your State Health Insurance Assistance Program (SHIP), which offers unbiased counseling at no cost.
Even if you have been turned down before, it is worth reapplying. Income limits are updated each year, your circumstances may have changed, and some states have expanded their eligibility rules in recent years.
Your Next Step
Do not let a rough estimate of your income talk you out of applying for help you may genuinely deserve. Visit Medicare.gov or call 1-800-MEDICARE (1-800-633-4227) to learn more about Medicare Savings Programs and get connected with your state's application process. You can also visit BenefitsCheckUp.org, a free tool from the National Council on Aging, to screen yourself for eligibility before you apply. A few minutes of your time could unlock meaningful savings on your Medicare costs every single month.
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