How does MAGI impact the cost of Medicare? Can a taxpayer appeal increase of Medicare premiums due to increased MAGI?

QOTW: 1/21/21 What life-changing events make Medicare recipients eligible to appeal Medicare premium increases, an income-related monthly adjustment amount (IRMAA)?

February 01, 2021

Q: Can Medicare beneficiaries appeal premium increases if their 2020 MAGI has decreased?

Two clients received letters from the Social Security Administration saying they’d have to pay higher Medicare Part B premiums in 2021 because of their 2019 income.

Magda retired in February 2020 and started social security and Medicare. Before retirement she did have a high-paying position, so her 2019 income was over the single filer income limit for the basic Medicare premium.

However, even with a few weeks’ salary at the beginning of the year, her 2020 income is considerably lower and will likely remain under the limit going forward.

Josef retired and started social security and Medicare several years ago. His wife still works and will retire in a few years when she turns 65. Before 2019 their income consisted of her small part-time salary, his retirement distributions, partly taxable social security, and rent income from several parcels of farmland.

Before 2019 he paid only the basic Medicare premium. In 2019 he decided to sell the land. Since he bought it decades ago its value had increased substantially.

The gain on the sale put their 2019 income over the joint filer limit for the basic premium. Their 2020 income has dropped under the limit and they don’t expect it to increase.

Can these two clients appeal the higher Medicare premiums?

A: They may be able to appeal the income-related monthly adjustment amount if a life-changing event caused the MAGI decrease.

The Medicare premium increase you’re referring to is called an income-related monthly adjustment amount, or IRMAA. Medicare enrollees who have experienced certain life-changing events may appeal the Social Security Administration’s (SSA’s) IRMAA decision by filing Form SSA-44 with the SSA. It appears that Magda, but not Josef, is eligible to appeal the decision.

How the SSA determines the IRMAA

In 2021 the basic or standard Medicare Part B monthly premium is $148.50. Medicare recipients pay an IRMAA in addition to the standard premium if their modified adjusted gross income (MAGI) is above a threshold.

For a single filer the threshold is MAGI over $88,000.
For a joint filer the threshold is MAGI over $176,000.
The starting IRMAA (for MAGI over the threshold) is $59.40, which results in a Medicare Part B premium of $207.90.

The IRMAA increases on a sliding scale as higher MAGI thresholds are reached. MAGI for this purpose consists of AGI plus tax-exempt interest income. You haven’t mentioned if Magda or Josef also has Medicare D prescription drug coverage. An IRMAA applies to Medicare D premiums as well and information about it may also be in their SSA notices.

See the SSA-44 for the full list of Part B and Part D IRMAAs.

Appealing the IRMAA decision

The Social Security Administration figures the IRMAA based on the enrollee’s most recent tax return. For most Medicare participants the 2021 IRMAA is based on the 2019 tax return.

Because income circumstances can change, participants have an opportunity to appeal the IRMAA based on life-changing events. These are:

  • Marriage
  • Divorce or annulment
  • Death of a spouse
  • Work stoppage
  • Work reduction
  • Loss of income-producing property not at the owner’s direction
  • Loss of pension income from a scheduled cessation, termination, or reorganization of an employer’s pension plan
  • Employer settlement payment from a bankruptcy or reorganization

Retirement (one type of work stoppage) is a listed event so Magda is eligible to appeal the SSA’s IRMAA decision. Note that Medicare enrollees must be able to demonstrate how an event has affected their income as an individual could end up with the same or higher income after a given event. Also, an event may not eliminate the IRMAA but drop the individual to a lower MAGI tier and lower IRMAA.

Magda should complete Form SSA-44 per instructions and supply evidence of her income change, such as a signed statement from her employer and copy of her 2020 tax return. She can send or bring the completed form and documents to her local Social Security office.

She can also schedule an interview at her local office by calling 1-800-772-1213. (She can schedule an interview without first completing the form, but the process would likely be easier and faster if she has the completed form and documents ready.)

Josef’s sale of farmland parcels does not appear to be a life-changing event. The SSA-44 instructions explain that the loss of income-producing property cannot be due to the owner’s actions, such as a sale or transfer of the property.

Acceptable reasons include loss of real property because of a federal- or state-declared natural disaster, destruction of livestock or crops due to disaster or disease, loss of property due to arson, and loss of investment property due to fraud or theft.

However, the IRMAA in Josef’s case may change or be eliminated in 2022 based on his 2020 income.

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