Medicare increases monthly premiums for Part B and Part D coverage if your income is higher than certain limits. To avoid these surcharges, you’ll need to reduce your modified adjusted gross income. Talk with a CPA or financial adviser to determine which income-lowering strategy is best for your situation.
Full Answer
Can I lower my Medicare Part B premium?
You can ask the Social Security Administration to re-evaluate your premium if your income lowers because of a life-changing event. Examples of life-changing events include retirement, divorce, and the death of your spouse. How Can I Lower My Medicare Part B Premium? Everyone must pay a premium for Part B.
Can I reverse my Medicare Part B surcharges?
If your circumstances change, you can reverse those surcharges. Higher-income Medicare beneficiaries (individuals who earn more than $85,000) pay higher Part B and prescription drug benefit premiums than lower-income Medicare beneficiaries.
What are Medicare surcharges and how can you avoid them?
But it’s an unfortunate expenditure for households that are forced to pay extra premiums on top of their usual Medicare costs, and it that can sometimes be avoided. You’ll pay Medicare surcharges as well as premiums for Part B and Part D coverage if your household has more than $176,000 in income combined, or $88,000 if you’re single.
When to file a request for a Medicare premium surcharge reduction?
If a qualifying life event caused the drop in expected income, then filing a request with the SSA could mean a more immediate change in Medicare premiums, rather than waiting for the savings until 2021. How do you request the premium surcharge reduction?
How can I reduce Medicare surcharge?
Avoid the Surcharge in the First Place If you're still working, contribute to your 401(k) or other tax-deferred account (such as a SEP IRA, if you're self-employed). Contributions will reduce your modified adjusted gross income, which is used to calculate the surcharge.
Are Medicare Part B premiums based on adjusted gross income?
Most people pay the standard Part B premium amount. If your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain amount, you'll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.
Is Medicare surcharge based on AGI?
Medicare premiums and any surcharges are based on your filing status and Modified Adjusted Gross Income (MAGI) with a two-year lookback (or three years if you haven't filed taxes more recently).
How can I reduce my Medicare Part B premiums?
Those premiums are a burden for many seniors, but here's how you can pay less for them.Sign up for Part B on time. ... Defer income to avoid a premium surcharge. ... Pay your premiums directly from your Social Security benefits. ... Get help from a Medicare Savings Program.
What is the modified adjusted gross income?
Modified Adjusted Gross Income (MAGI) in the simplest terms is your Adjusted Gross Income (AGI) plus a few items — like exempt or excluded income and certain deductions. The IRS uses your MAGI to determine your eligibility for certain deductions, credits and retirement plans. MAGI can vary depending on the tax benefit.
How is modified adjusted gross income for Medicare premiums calculated?
Your MAGI is calculated by adding back any tax-exempt interest income to your Adjusted Gross Income (AGI). If that total for 2019 exceeds $88,000 (single filers) or $176,000 (married filing jointly), expect to pay more for your Medicare coverage.
How do I figure adjusted gross income?
How to calculate adjusted gross income (AGI)Start with your gross income. Income is on lines 7-22 of Form 1040.Add these together to arrive at your total earned income.Subtract your adjustments from your total income (also called "above-the-line deductions")You have your AGI.
What income is included in MAGI for Medicare premiums?
Medicare premiums are based on your modified adjusted gross income, or MAGI. That's your total adjusted gross income plus tax-exempt interest, as gleaned from the most recent tax data Social Security has from the IRS.
What income level triggers higher Medicare premiums?
In 2022, higher premium amounts start when individuals make more than $91,000 per year, and it goes up from there. You'll receive an IRMAA letter in the mail from SSA if it is determined you need to pay a higher premium.
What is modified adjusted gross income for Medicare Part B?
Your MAGI is your total adjusted gross income and tax-exempt interest income. If you file your taxes as “married, filing jointly” and your MAGI is greater than $182,000, you'll pay higher premiums for your Part B and Medicare prescription drug coverage.
Will my Medicare premiums go down if my income goes down?
If your income has dropped since 2017 because of certain life-changing events, such as marriage, divorce, death of a spouse or retirement, you can ask to have your Medicare premiums based on your more recent income, which could reduce or eliminate the surcharge.
How do I stop Irmaa?
Reducing your MAGI (Modified Adjusted Gross Income) will help you reduce or avoid IRMAA in future years. To appeal IRMAA in 2022, you will need to file Form SSA-44. From 2007 to 2021, IRMAA bracket increases have ranged from 4.73% – 8.02%. The official 2023 IRMAA brackets will be announced later this year.
What is IRMAA in Medicare?
What is IRMAA? IRMAA is an extra charge added to your monthly premiums for Medicare Part B (medical insurance) and Medicare Part D (prescription drug coverage). The income surcharge doesn’t apply to Medicare Part A (hospital insurance) or Medicare Part C, also known as Medicare Advantage. IRMAA charges are based on your income.
How to inform Medicare of a qualifying change?
To inform Medicare of a qualifying change, you’ll need to complete the Medicare Income-Related Monthly Adjustment Amount Life Changing Event form and either mail it or take it in person to your local SSA office.
What to do if you have a higher income on Medicare?
If you’re a Medicare beneficiary with a higher-than-average income, the Social Security Administration ( SSA) could tack an extra charge onto the Medicare premiums you pay each month.
How to reduce IRMAA?
Since your IRMAA is based on your income, many strategies for reducing it involve lowering your annual income. However, there are other steps you can take to avoid paying a higher IRMAA than you need to.
How much will Medicare cost in 2021?
In 2021, most people pay for $148.50 per month for Medicare Part B. If your income is higher than those amounts, your premium rises as your income increases. For example, if your annual income in 2019 was more than $500,000 as a single taxpayer or more than $750,000 as a married couple, your 2021 Part B premium would be $504.90 for Medicare Part B ...
What are the things that qualify as life changing for Medicare?
The following events qualify as life changing for purposes of calculating an IRMAA: marriage. divorce. spouse’s death. reduced hours or loss of your job.
What is a reverse mortgage?
A reverse mortgage is where you can use the equity in your own home to pay for living expenses.
How is the IRMAA surcharge determined?
The IRMAA surcharge is determined annually based on your MAGI for the second prior year. That is, your 2016 MAGI was used to determine your 2018 IRMAA, and the 2017 return that you filed this year will determine your IRMAA rate for 2019. While Medicare does allow you to appeal your IRMAA rates based on certain “life changing events,” such as death, divorce, retirement, etc., there is no exception for one-time income events, such as large capital gains, a large Roth IRA conversion, or even winning the lottery. If income returns to normal levels the next year, the next year’s IRMAA surcharge will automatically be adjusted downward. Lastly, IRMAA surcharges apply on a “cliff” basis. That is, if your income is just at the threshold for a tier, the full surcharge for that tier applies to you (and your spouse if you are married) for the entire year.
How much does Medicare cost?
For 2018, the standard premium for Part B is $134 per month, while the premium for Part D depends on the plan elected. Individuals with “high income” pay more. “High income” here means modified adjusted gross income (MAGI), i.e., federal taxable income adjusted for certain tax-free income, in excess of $85,000 single and $170,000 married filing jointly. If someone has income above these levels, the Parts B and D premiums are subject to a surcharge called an Income Related Monthly Adjustment Amount, or IRMAA for short.
What happens if you convert an IRA to a Roth IRA?
Someone who reaches age 70 ½ with a large IRA might experience “sticker shock” when they realize that the Required Minimum Distributions (RMDs) from the IRA increases MAGI above the next tier, costing the individual thousands of dollars in increased Medicare premiums. A Roth IRA conversion strategy, properly planned out, can help minimize this impact. Roth IRAs are not subject to RMDs and any distributions from the Roth are tax-free, so converting an IRA to Roth has the double effect of reducing the future RMDs from the regular IRA and also creating a source of tax-free funds, the use of which will not change MAGI. However, this strategy is a double-edged sword, since converting a regular IRA to Roth is a taxable event and increases MAGI in the year of the conversion. Thus, a large conversion in single year might cause a one-year increase in Medicare premiums.
How much can I distribute from my IRA?
We have written about this strategy many times. If you are older than 70 ½, you can distribute up to $100,000 annually from your IRA to one or more charities, but not to a donor advised fund or private foundation. This distribution can be used to satisfy your RMD. Properly done, this distribution does not appear as income on your federal tax return, and accordingly does not increase MAGI. So, if you use this strategy, all or part of RMD is excluded from income, and would have no impact on the IRMAA calculations.
Can a large Roth conversion cause a one year increase in Medicare premiums?
Thus, a large conversion in single year might cause a one-year increase in Medicare premiums. While this might still make sense depending on the future premiums saved, a better strategy would be to do a series of small Roth conversions, either before Medicare eligibility, or while there is some room within the various IRMAA tiers. ...
Is an HSA tax deductible?
Contributions to an HSA are tax-deductible, like a contribution to a retirement plan, grow tax-deferred, also like a retirement plan, but are not taxed when used for qualified medical expenses, unlike a distribution from a retirement plan, which is taxed. Because a qualified distribution from an HSA is tax-free, it has no impact on MAGI and therefore Medicare rates.
Can you convert an IRA to Medicare?
On the other hand, converting an IRA to save Medicare premiums will not make sense if the increased taxes on the conversion more than offset the projected future Medicare premium savings.
If your income is too high, you could pay a lot more for your monthly Part B premiums. But you may be able to get the surcharge reduced
I am trying to keep my income below $85,000 so I will not have to pay the Medicare high-income surcharge. How is income defined for Medicare premiums, and how much will I pay if I can’t reduce my income?
See Our Slide Show: 10 Things You Must Know About Medicare
Even though most people will pay $104.90 per month for Medicare Part B premiums in 2015, your monthly bill could be $146.90 to $335.70 per person if you’re subject to the high-income surcharge. This happens if your adjusted gross income (plus tax-exempt interest) is higher than $85,000 if you’re single or $170,000 if you’re married filing jointly.
How to avoid Medicare surcharges?
You might be able to avoid paying some of the Medicare surcharges by enrolling in a Medicare Advantage plan (Part C) or a Medigap policy. Most people are better off having one of these policies to close the Medicare coverage gaps. Work with a professional to create a cost-effective plan if you only enroll in Original Medicare.
How does Social Security determine Medicare surcharges?
The Social Security Administration determines your Medicare surcharges based on your modified adjusted gross income (MAGI) from two years ago.
Why did Medicare never reach my pocket?
You watched as somewhere around 15% of your paycheck never reached your pocket, because the federal government took it for Social Security and Medicare payments. 1.
How much does Medicare cost for retirees?
That drives monthly healthcare costs higher, but for most people, standard Medicare costs just $148.50 per month. For your Part B premiums, the federal government—thanks in part to your decades of deductions—pays 75% of the cost.
What is the difference between MAGI and AGI?
According to the Social Security Administration (SSA), your modified adjusted gross income (MAGI) from two years ago is what counts. This means that benefits for the current period are based on calculations from income you earned two years prior. Most people's MAGI and adjusted gross income (AGI) will be the same, but if you’re paying student loan interest, alimony payments, moving expenses, or some other types of payments, your MAGI may be different.
How much extra do you pay for a part B?
Paying extra is something you might be able to avoid, but there’s good news hidden in these extra charges. First, here’s how the charges break down: If you’re married and make $176,000 to $222,000 jointly or $88,000 to $111,000 as an individual, you’ll pay an extra $59.40 monthly for Part B and $12.30 extra for Part D.
Can you pay Medicare surcharges next year?
, You may pay this year but not next year Because surcharges are determined yearly.
How does the SSA determine Medicare premiums?
This means that your Modified Adjusted Gross Income (Adjusted Gross Income with tax-exempt income added back) reported for 2017 determines your Medicare premiums for 2019.
What is Medicare premium for 2019?
For individuals paying Part B premiums, for example, the standard premium in 2019 is $135.50 per month.
Why is Medicare surcharge determined each year?
Because these Medicare surcharges are determined each year, you have opportunities to do more proactive income and tax planning leading up to and after Medicare enrollment. Employing different strategies that help control your Adjusted Gross Income could also help control potential Medicare premiums in future years.
How to appeal an IRMAA decision?
For other disagreements with an IRMAA determination, you have the right to appeal. You can file an appeal online (socialsecurity.gov/disability/appeal) and select “Request Non-Medical Reconsideration”, file a Request for Reconsideration form, or contact your local Social Security office.
How much does Medicare Part B cost?
For a couple who filed a joint return with income above $170,000 and up to $214,000 in 2017, each spouse paying for Medicare Part B may pay an additional $54.10 per month above the standard premium (a total of $189.60 monthly) in 2019.
What are the changes in Social Security?
If you experience a change to your income because of certain life events, you can request that the Social Security Administration (SSA) review your situation and use your more recent income to determine what premium adjustment (if any) should apply. Examples of these life-changing events include: 1 Work stoppage or work reduction 2 Death of a spouse 3 Marriage 4 Loss of pension income 5 Divorce or Annulment 6 Loss of income-producing property
How much is the premium for a couple in 2019?
A couple with income that falls between $320,000 and $750,000 (or an individual filing single with income between $160,000 and $500,000) in 2017 could each pay an additional $297.90 above the standard premium, for a total of $433.40 per month in 2019.
What is the IRMAA based on?
Your IRMAA will be based on your income two years prior. For example, 2020 Medicare premiums will be based on income reported on 2018 tax returns, says Floyd. “If you have stopped working and your income will be lower than the amount shown on the tax return used to figure the IRMAA, you can appeal using Form SSA-44.
What is a HECM mortgage?
An HECM, or home equity conversion mortgage, is a reverse mortgage insured by the U.S. Federal Government. A HECM allows seniors to convert the equity in their home into tax-free cash flow. Medicare Part B premium 2020: Rates and deductibles rising 7% for outpatient care. Watch out: How you could endanger your own 401k.
How much is Medicare premium 2020?
But if you’re a single taxpayer and had modified adjusted gross income (MAGI) in 2018 of more than $87,000, or if you’re a married couple and made more than $174,000 that year, you'll pay the standard premium amount ($144.60 in 2020) plus an extra charge added to your premium: the Income Related Monthly Adjustment Amount (IRMAA). Medicare uses your MAGI from two years earlier to determine if you’ll pay that extra charge in 2020.
What is an HSA account?
An HSA is a type of savings account that lets you reduce your taxable income as well as pay for qualified medical expenses.
What to do if you are subject to IRMAA?
If you’re subject to IRMAA, there are several steps you can take to avoid or reduce the extra charges added to your Part B and Part D premiums. The key, says Votava, is to maximize your cash flow without increasing taxable income.
When do you start taking RMDs?
Once you start taking required minimum distributions (RMDs), in most cases starting at age 70½, you have no control over that income, says Floyd. “People with very large IRAs will have large taxable RMDs, and these alone can throw them into IRMAA territory,” she says.
Can you limit sticker shock on Medicare?
Votava recommends working with your advisers “to see what elements of your retirement plan can be adjusted to limit unnecessary Medicare surcharges.” Additionally, she says, you can plan for those surcharges to limit sticker shock.
How to avoid late penalties on Medicare?
Avoid Late Penalties by Signing Up When First Eligible. While avoiding penalties doesn’t directly reduce Medicare premiums, it does prevent them from becoming higher. You can sign up for Medicare three months before your 65th birthday month. You then have a seven-month-long Initial Enrollment Period. There’s a financial motive to enroll ...
Why do people delay enrolling in Medicare?
Some people delay enrolling in Medicare because they have other insurance that’s cheaper or has other advantages. Those advantages won’t matter if your plan doesn’t count as “creditable coverage” and you have to pay a late enrollment penalty.
How long is the enrollment period for Part B?
You then have a seven-month-long Initial Enrollment Period. There’s a financial motive to enroll during that time. In general, if you wait and sign up for Part B later, you will pay a late enrollment penalty. You’ll continue to pay the penalty each month for the rest of your life.
What is Social Security premium based on?
That means your premium is based on your modified adjusted gross income from two years prior. You can ask the Social Security Administration to re-evaluate your premium if your income lowers because of a life-changing event. Examples of life-changing events include retirement, divorce, and the death of your spouse.
Is Medicare tax free?
It’s best to get advice from a professional about ways to grow your income tax-free. Medicare rules change from year to year, and so do the plans available in your area. It makes good financial sense to contact an agent every year to compare your options.
Can you change your Medigap plan at another time?
If you try to join a Medigap plan at another time, health issues can raise your premium. There are also yearly opportunities to change your advantage or Part D plans. These give you a chance to compare options and choose one with a lower cost.
Do you pay Medicare if you are a high income taxpayer?
Most people pay a standard rate for Medicare. If you’re a high-income taxpayer, you pay more. If your income is more than $88,000 for individuals or $176,000 for married couples, you’ll have a higher premium or an Income Related Monthly Adjustment Amount .In assessing IRMAA, Medicare doesn’t look at your current income.
How is Medicare Part B premium determined?
Part B is often referred to as “Medical Insurance.” (Please bear with me as there are going to be some acronyms used by the Social Security Administration.) These premiums are determined by your modified adjusted gross income or MAGI from two years ago. Your modified adjusted gross income is determined from data on your tax return. In this case, MAGI is your adjusted gross income plus your tax-exempt interest.
How much is Medicare Part B 2021?
For 2021 the standard Part B premium is $148.50 per month. If you filed your taxes as single in 2019 and with a MAGI above $88,000 you would pay and extra $59.40 per month. The same amount is added for joint tax filers with a MAGI over $176,000. This is a tiered scale that you can find at Medicare.gov. The maximum IRMAA is $356.50 per month.
What is Medicare for seniors?
Medicare is a program that helps with medical expenses for Americans over the age of sixty-five. The program is very specific on when you must enroll or be subject to a delayed enrollment penalty, which lasts a lifetime! These requirements can really get our emotions stirred and cause us to make decisions quickly and possibly pay some higher premiums at the beginning of our Medicare journey.
How to reduce Part B premiums?
Here is how to reduce your Part B premiums: complete form SSA-44, which can be found on the Social Security Administrations website, SSA.gov/forms. Just search for “SSA-44.” On this form, you will identify your life-changing event, your MAGI information from two years ago (see your last tax return), what you expect your income to be after the life-changing event, and, most importantly, documentation supporting your claim.
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