IRMAA Tricky For New Retirees
Social Security uses the most recent federal tax return provided by the IRS to determine who must pay higher Medicare premiums. For example, to determine your client’s 2013 Medicare premiums, Social Security typically will look at the tax return filed in 2012 for tax year 2011.
But if your client retires in 2013, her income in 2013 may be lower than it was in 2011 when she was working full time. Social Security will set her premium higher based on her 2011 income, unless she requests a new decision. That’s why your client needs to understand how Medicare premiums are set and what recourse she has if she disagrees with Social Security’s calculation.
Social Security uses the most recent federal tax return provided by the IRS to determine who must pay higher Medicare premiums. For example, to determine your client’s 2013 Medicare premiums, Social Security typically will look at the tax return filed in 2012 for tax year 2011.
But if your client retires in 2013, her income in 2013 may be lower than it was in 2011 when she was working full time. Social Security will set her premium higher based on her 2011 income, unless she requests a new decision. That’s why your client needs to understand how Medicare premiums are set and what recourse she has if she disagrees with Social Security’s calculation.
Social Security encourages higher-income beneficiaries to request a new decision about their Medicare premium if their income has gone down because of any of the following life-changing events:
• They married, divorced or became widowed
• They or their spouse stopped working or reduced their work hours
• They or their spouse lost income-producing property due to a disaster or other event beyond their control
• They or their spouse experienced a scheduled cessation, termination or reorganization of an employer’s pension plan
• They or their spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy or reorganization
In each of these instances, the individual needs to supply Social Security with documentation that verifies their changed situation. For example, your client would need to supply Social Security with documentation that verifies that she retired in 2013 and the reduction in income.1
Make IRMAA A Part Of Retirement Planning
You can add value to the service you provide to your clients by helping them understand how income-based Medicare premiums may affect their finances.
For your clients whose income places them near one of the IRMAA income thresholds, you can factor this issue into tax and financial planning. For example, a one-time sale of an asset will prove less profitable if it boosts a client’s income, requiring that she pay a higher Medicare premium for a year.
More and more of your clients may be hit with these premium surcharges in the coming years. From 2007 through 2010, the IRMAA income thresholds were indexed annually for inflation. Because ACA freezes the income thresholds at 2010 levels, the share of Medicare beneficiaries who pay IRMAA is projected to rise from 5.1 percent in 2012 to 9.7 percent in 2019.2
And politicians on both sides of the aisle have proposed an expansion of higher-income Medicare premiums as part of their debt and deficit reduction plans.