Dear Liz:We are retired and living mainly on a pension, which covers our month-to-month needs. We own our house outright and are considering downsizing. When we do that, will the capital gain cause our Medicare premiums to go up two years later? If so, will it automatically go down again after one year?
Answer:A big-enough capital gain can trigger Medicare’s income-related adjustment amount, which are surcharges on your Part B and Part D premiums. As you note, there’s a two-year delay between the higher income on your tax returns and higher premiums.
If you’ve had a life-changing event — marriage, divorce, a spouse’s death or loss of income, for example — you can appeal the increase by filing formSSA-44. Otherwise, consider saving some of the home sale profits to cover your higher premiums for that one-year period.
FAQs
Answer: A big-enough capital gain can trigger Medicare's income-related adjustment amount, which are surcharges on your Part B and Part D premiums. As you note, there's a two-year delay between the higher income on your tax returns and higher premiums.
Will capital gains increase my Medicare premiums? ›
Fortunately, the IRS allows homeowners who sell their primary residence to exclude up to $250,000 of the gain from their income ($500,000 if married filing jointly). Exempt capital gains do not count toward MAGI income, so they do not affect Medicare premiums.
What income level triggers higher Medicare premiums? ›
For 2024, the standard Medicare Part B monthly rate is $174.70. But you will pay higher rates if you earned more than $103,000 on your individual 2022 tax return or more than $206,000 on a joint return. For instance, people who made $105,000 in 2022 will pay $244.60 per month for Medicare Part B in 2024.
Do capital gains count toward Irmaa? ›
Key Takeaway: IRMAA isn't a random calculation. It's influenced by your gross income, filing status, and even dividends or capital gains you make.
Who determines Medicare premium increases? ›
How Social Security Determines You Have a Higher Premium. We use the most recent federal tax return the IRS provides to us. If you must pay higher premiums, we use a sliding scale to calculate the adjustments, based on your “modified adjusted gross income” (MAGI).
Is there a Medicare surcharge on capital gains? ›
The Medicare surtax applies to taxpayers above certain income thresholds. If the surtax applies to you, you'll owe an additional 3.8% tax rate on your investment income.
How does house sale income affect your Medicare premium? ›
Medicare premiums are based on your MAGI from two years prior, so if you sell your home within two years and realize a substantial gain, it could increase your premiums due to the Income-Related Monthly Adjustment Amount (IRMAA).
Does everyone have to pay $170 a month for Medicare? ›
No, most seniors pay between $175 and $371 per month depending on what kinds of Medicare coverage they buy. However, seniors who have a low income can qualify for free or reduced-cost Medicare.
How do you qualify for $144 back from Medicare? ›
To be eligible for the Medicare Part B Giveback Benefit, you must:
- Be enrolled Original Medicare (Parts A and B)
- Pay your own Part B premium.
- Live in the service area of a plan that offers a Part B giveback.
If you've had a life-changing event that reduced your household income, you can ask to lower the additional amount you'll pay for Medicare Part B and Part D. Life-changing events include marriage, divorce, the death of a spouse, loss of income, and an employer settlement payment.
Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate. A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis. Basis is an asset's purchase price, plus commissions and the cost of improvements less depreciation.
How to avoid Medicare irmaa? ›
Utilizing Financial Planning to Avoid IRMAA
- Make charitable contributions to lower your MAGI. ...
- Utilize Roth IRA funds instead of an IRA for some cash withdrawals.
- Spread out withdrawals for cash needs across a few years. ...
- If you have earned income, continue to make tax-deductible retirement contributions.
Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take. Gross income includes wages, dividends, capital gains, business and retirement income as well as all other forms income.
What income affects Medicare premiums? ›
If you file an Individual Tax Return or Joint Tax Return
| Filing Individual Tax Returns | Filing Joint Tax Returns | Total monthly Part B premium |
|---|
| $103,000 or less | $206,000 or less | $174.70 |
| Over $103,000 & Up to $129,000 | Over $206,000 & Up to $258,000 | $244.60 |
| Over $129,000 & Up to $161,000 | Over $258,000 & Up to $322,000 | $349.40 |
3 more rowsSo, the SSA looks at your 2022 tax returns to see if you must pay an IRMAA in 2024. For 2024, beneficiaries whose 2022 income exceeded $103,000 (individual return) or $206,000 (joint return) will pay a total premium amount ranging from $244.60 to $594.00 depending on income.
Can I deduct Medicare Part B premiums on my taxes? ›
If you have a high income, you may end up paying more due to Income-Related Monthly Adjustment Amounts (IRMAA). But there's good news for the self-employed folks out there – all of their Medicare premiums, including those for Part B, can be fully deducted off their federal taxes.
What income is included in Magi for Medicare premiums? ›
MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.
Why did my Medicare contribution increase? ›
The increases are mainly due to projected increases in healthcare spending. Certain beneficiaries will continue to pay higher premiums based on their modified adjusted gross income.
What income is included in the Irmaa calculation? ›
Not all types of income are taken into consideration, however Medicare defines income for IRMAA to be “your adjusted gross income plus any tax-exempt interest you may have” or everything on lines 2a and 11 or the IRS form 1040 in tax-year 2022. This income is known as your Modified Adjusted Gross income or MAGI.
