Understanding the Medicare Premium Surcharge

Those receiving Medicare benefits are sometimes hit with a tax surprise. This tax surprise takes the form of the income-related monthly adjustment amount, or IRMAA, which is an additional amount paid on top of the monthly base premium for Medicare Part B and D. This surcharge is based on your modified adjusted gross income (MAGI) from two years prior.

Many people are not aware that you can contest this surcharge, depending on your circumstances. Here are a handful of examples of life events that may qualify for a reduction of the Medicare surcharge:

• Recently retired and your income has declined
• Marriage or divorce
• Death of a spouse
• Loss of a pension

On the other side, here are a few examples of situations in which you will likely not be able to contest the surcharge or achieve a reduction in your Medicare premium:

• Increase in income caused by a Roth conversion
• Significant distribution from a traditional IRA or pre-tax retirement account
• Home sale proceeds in excess of the capital gains exclusion
• Sale of a business or other asset resulting in taxable income

Here are some methods to consider that may result in the reduction of Medicare surcharge payments:

• Tax-deductible retirement contributions to traditional IRAs or 401(k)s
• Qualified Charitable Distributions (QCDs) to fulfill required minimum distributions
• Amended tax return resulting in lower modified adjusted gross income
• Distributions from after-tax or tax-free accounts such as a Roth IRA

If you believe that your situation warrants a reduction of the Medicare surcharge, you can submit Form SSA-44 to the Social Security Administration along with any supporting documentation. A conversation with a Social Security Administration representative should also be considered to ensure that your situation meets the circumstances required for a surcharge reduction.

Please follow the link included here to view Form SSA-44 as well as several useful tips from the Social Security Administration related to this process. Also be aware that supplemental insurance policy premiums are not subject to income related adjustments. If you would like to discuss this topic with a member of our team, please reach out to us.