Q: We sold our farm that produced quite a lot of income through the years. On top of the loss of that income, we’re expecting a big capital gain on the sale. I recently learned that we might now have to pay higher Medicare Part B premiums, as a result. This seems very unfair. Our income will be way down, but we’re now going to have to pay more? What can we do?
A: You’ve touched on a little known feature of Social Security. As you know, each month part of your Social Security benefit is used to pay for a part of the cost of your Medicare Part B benefits. Your portion of the cost is automatically withheld from your Social Security and it kind of feels like someone is garnishing your wages. But, this is an efficient way for Medicare to collect their premiums.
For 2023, the base premium amount for Medicare Part B is set at $165 per month. This premium is really only 25% of the total cost of your insurance. It applies only for people with “modified adjusted gross income” that didn’t exceed $97,000 (single) or $194,000 (married) back in 2021. Yes, you read that correctly, the amount you pay for your Medicare Part B benefit is based on your income from a couple years ago.
If you exceed certain income thresholds, Medicare expects you to pay more than 25% of the cost of your Medicare Part B coverage. The extra amount or surcharge is called the Income-Related Monthly Adjustment or IRMAA. With each income threshold you cross, your IRMAA premium surcharge grows, with you being asked to cover 35%, 50%, 65%, 80% and then 85% of the total cost of your Medicare Part B.
Remember, this IRMAA surcharge only lasts for one year at a time and it’s based on your income from two years prior. This means your 2023 tax return won’t impact your Medicare Part B premium until 2025. When 2026 rolls around, your IRMAA surcharge will fall away.
Now, there is an appeal process if you feel your IRMAA surcharge is unwarranted. When you have a “life-changing event”, you can file Form SSA-44 to ask Social Security to reconsider your IRMAA surcharge. However, their definition of a life-changing event is quite specific. There are seven categories; marriage, divorce, death of a spouse, work stoppage or reduction, loss of income-producing property, loss of pension or an employer settlement payment.
At first blush, the sale of your farm seems like the loss of an income-producing property. But, Social Security explicitly states that the loss must “not be caused by the beneficiary.” Since you voluntarily sold your farm, rather than losing it due to something outside your control, you wouldn’t qualify for relief on form SSA-44.