By Valerie MacLeod, CFP®, CPA/PFS
If enrolled in Medicare, you’re probably accustomed to paying your monthly premiums, but have you ever stopped to consider how these amounts are calculated? The Social Security Administration determines Medicare premiums for Parts B and D each year based on the modified adjusted gross income (MAGI) from your tax return – generally from two years ago. For example, Social Security will determine your 2020 premiums at the end of 2019. Since you haven’t filed your 2019 tax return yet, your premiums will be based on income from your 2018 tax return.
For 2019, the monthly base premium on Part B is $135.50 (adjusted annually for inflation). However, if your MAGI exceeds $85,000 (single) / $170,000 (married filing jointly), then you will be charged an additional premium.
If your income has dropped significantly and you are being charged higher premiums based on your income from two years ago, you may be able to appeal to Social Security to have your premiums lowered. A few examples of life-changing events that could impact your income include:
- Marital Status Change – Marriage, Divorce, Death of Spouse
- Loss of Income-Producing Property
- Loss of Pension Income
Not all fluctuations in income will qualify. Large, one-time sales of property or stocks do not qualify as loss of income-producing property because the assets were sold at your discretion. Conversions of traditional IRAs to Roth IRAs are another situation in which you may experience a temporary spike in “income” on your tax return, but likewise, these cannot be appealed. The good news is that your premiums are recalculated each year, so any impact from unusually high-income years is only temporary. If your situation does qualify, you can appeal to Social Security by completing paperwork and providing appropriate documentation. If Social Security approves the change, your premiums will be adjusted going forward.
There are several ways you can proactively plan and manage your income to avoid a higher bracket for Medicare premiums. Examples include managing IRA distributions, deferring or accelerating capital gain and loss transactions, and taking advantage of certain deductions. If you’re on Medicare, or about to apply for the first time, it’s worth doing a bit of planning to ensure you’re paying the lowest possible premium each month. If you have questions or want to explore your options further, please do not hesitate to reach out to a Domani Wealth advisor today.
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