50+ Lifestyles

Reminder: Another Hidden Tax We Almost Forgot About

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Today I want to remind all Medicare persons about a kind of a hidden tax that still exists and we forget about. Last month was April – April is income tax month. We know April because if you have not done so yet, then it’s past time to get started on 2023 income tax return. Most of us have long since completed 2023 income taxes and have kind of put taxes out of our minds for now. But there is another tax hanging over us if we are collecting Social Security retirement benefits. If you are receiving Social Security each month there is another tax going on. That tax is the IRMAA – Income-Related Monthly Adjustment Amounts. So many taxpayers forget about this tax, but know it is calculated by the Social Security Administration based on income-tax records and it is deducted from Social Security retirement payments. It is a ‘hidden tax,’ so we often forget about it or don’t even know it is a charge (tax).

Over the past decade the number of recipients drawing Social Security Part B I has doubled to 5.2 million for 2023 while the amount collected has more than tripled to $13.4 billion.

Now, listeners, I received a couple of phone calls this week about IRMMA. Do you know about IRMMA – Income-related monthly adjusted amount? This is the TAX or PENALTY on high-income Medicare beneficiaries as an additional charge to Medicare Part B and Medicare Part D. based on your household income.

For high-income Medicare beneficiaries, Part B & Part D premiums include an additional charge based on your modified adjusted gross income. Beneficiaries who earn over $103,000 a year as a single income tax filer – and who are enrolled in Medicare Part B and/or Part D pay a surcharge that’s added to their Part B & D premiums. IRMAA is determined by income from your income tax returns two years prior.

The IRMAA penalty begins at $69.90 single tax filers making the total monthly cost of Part B $174.70 for those in the lowest IRMAA bracket. Base cost of Part B of Medicare is $174.90 – add the penalty for IRMAA. The IRMAA rises as adjusted income increases. The maximum IRMAA in 2024 will be $594.00 bringing the total monthly cost for Part B to $594.00 for those in that bracket.

Married persons filing a joint return will have this penalty doubled. $174.90 per person…. then the penalty applied per month per person.

IRMMA is a tax (penalty) for high income households – clients who anticipate their income levels to remain high even during retirement should look into strategies to reduce MAGI before they become eligible for Medicare. Clients should of course take advantage of tax-deferred retirement accounts to reduce MAGI – contributing to a 401K can reduce adjusted gross income. By at least $23,000 under 50 in 2024 – clients age 50 and older can contribute a total of $30,500 in pre-tax funds to these accounts. That will help reduce MAGI.

During the month of April, we will continue our monthly Virtual Community Meetings – Tuesday April 16 & Thursday April 18. Craig presents these meetings virtually. So, you remain in your own home using your own laptop or computer equipment. Call us at 563.332.2200 or email us at www.dickschillig.com. To receive instructions on participating in these Medicare Meetings Virtually. Ask Craig about this hidden tax. In addition to learning about Medicare requirements, receive information on costs of Medicare Part B.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.