Ask the Expert: How can we lower our Medicare surcharges?
My wife and I have been notified that we'll each pay about $78 per month in Medicare surcharges based on our 2021 joint tax return.
In 2022, I worked fewer hours and earned less than in 2021. I'm now semiretired. My wife doesn't work outside the home. Our 2022 tax return will show Modified Adjusted Gross Income (MAGI) below the surcharge threshold. Can we ask Social Security to rescind the surcharge since our income has been reduced? Will they consider earned income alone, or will our Social Security benefits and required distributions from retirement accounts also be considered in the determination?
The calculation that determines Medicare surcharges includes earned income, investment income (dividends, capital gains, and both taxable and tax-exempt interest); distributions from tax-deferred retirement accounts; taxable Social Security benefits; and alimony. Not included: gifts, inheritances, and distributions from Roth IRAs.
Medicare surcharges are always based on your federal tax return from two years earlier, so your 2023 surcharge is based on your 2021 tax return. You can appeal to have the surcharge waived if you've experienced one of seven "life-changing events" in the past two years. These include divorce, the death of a spouse, reduced work hours and loss of a job. (There's no appeal for one-time windfalls like a big capital gain resulting from the sale of a house.)
The surcharge can be a real financial shock. Depending on your income and tax filing status, this year it can add as much as $395.60 a month to the standard $164.90 Medicare Part B premium, and increase your Medicare Part D premium by up to $76.40 a month.
The bottom line
Even if your appeal to waive a 2023 Medicare surcharge fails, it may automatically disappear in 2024 based on your 2022 tax return.
