December 16, 2010

Medicare B Premium Surcharges, Part 2: 2011 Premiums

As part of the 2003 Medicare Prescription Drug Bill, a provision was added for a surcharge to be paid in addition to the normal Part B premium.  This effectively “means tests” the amount of Medicare premiums you are paying.  Those with higher Modified Adjusted Gross Income (MAGI)  have to pay more for their coverage than those with Lower Modified Adjusted Gross Income.  This “surcharge” needs to be taken into account when doing your tax planning.  It is particularly important today, considering the flurry of Roth Conversions taking place, as well as other income acceleration strategies.  This “surcharge” is based on Modified Adjusted Gross Income, not your taxable income, so marginal tax rates are not a factor here; it, in essence, is a tax on your income (including tax-exempt income, EE bond interest used for educational purposes, and any foreign earned income) before deductions and exemptions.  Don’t forget that the cash flow impact for married taxpayers is times two.  The increase in premiums is not permanent; if your increase was the result of a one-time event and your MAGI subsequently falls below a threshold, your premiums will be reduced to those levels.  So for many taxpayers the increase in premiums may be for only one year. 

You will not see the increase in your premiums immediately once you cross one of the MAGI thresholds.  To determine your MAGI, the Social Security Administration uses your most current tax return information provided by the IRS—typically, your tax return filed for two years prior (example: 2011 based on 2009 income tax return information).

In certain circumstances you can appeal the increase; however, one-time capital gain income and IRA liquidations (including Required Minimum Distributions) and Roth Conversions are not on the list of reasons to appeal.

If you have filed an amended tax return that has changed your MAGI, you will need to provide it to the Social Security Administration. 

If you disagree with the Social Security Administration, you can appeal in writing by completing a request for Reconsideration (Form SSA-561-U2; http://www.socialsecurity.gov/online/ssa-561.html).

It is important to consider the real “tax” cost of financial transactions taking into account all taxes, even those that appear to be hidden.  By making certain tax elections you may be able to mitigate the impact of the Medicare Part B surcharge.

Below is a table outlining the monthly premiums for 2011.

More information can be found at: http://www.socialsecurity.gov/pubs/10536.html.

Monthly Part B Premiums for 2011
 
Income-related monthly adjustment amount

Total monthly
premium amount

Individuals with a MAGI of $85,000 or less
Married couples with a MAGI of $170,000 or less

$0.00

$115.40 Standard Premium

Individuals with a MAGI above $85,000 up to $107,000
Married couples with a MAGI above $170,000 up to $214,000

$46.10

$161.50

Individuals with a MAGI above $107,000 up to $160,000
Married couples with a MAGI above $214,000 up to $320,000

$115.30

$230.70

Individuals with a MAGI above $160,000 up to $214,000
Married couples with a MAGI above $320,000 up to $428,000

$184.50

$299.90

Individuals with a MAGI above $214,000
Married couples with a MAGI above $428,000

$253.70

$369.10
























If you are married and lived with your spouse at some time during the taxable year, but filed a separate tax return, the following chart will apply:

 
Income-related monthly adjustment amount

Total monthly premium amount

Individuals with a MAGI of $85,000 or less

$0.00

$115.40

Individuals with a MAGI above $85,000 up to $129,000

$184.50

$299.90

Individuals with a MAGI above $129,000

$253.70

$369.10


December 13, 2010

Medicare B Premium Surcharges in 2010

As part of the 2003 Medicare Prescription Drug Bill, a provision was added for a surcharge to be paid in addition to the normal Part B premium. This effectively "means tests" the amount of Medicare premiums you are paying. Those with higher Modified Adjusted Gross Income (MAGI) have to pay more for their coverage than those with lower Modified Adjusted Gross Income. This "surcharge" needs to be taken into account when doing your tax planning. It is particularly important today, considering the flurry of Roth Conversions taking place, as well as other income acceleration strategies. This "surcharge" is based on Modified Adjusted Gross Income, not your taxable income, so marginal tax rates are not a factor here; it, in essence, is a tax on your income (including tax-exempt income, EE bond interest used for educational purposes, and any foreign earned income) before deductions and exemptions. Don’t forget that the cash flow impact for married taxpayers is times two. The increase in premiums is not permanent; if your increase was the result of a one-time event and your MAGI subsequently falls below a threshold, your premiums will be reduced to those levels. So for many taxpayers the increase in premiums may be for only one year.

You will not see the increase in your premiums immediately once you cross one of the MAGI thresholds. To determine your MAGI, the Social Security Administration uses your most current tax return information provided by the IRS—typically, your tax return filed for two years prior (example: 2010 based on 2008 income tax return information).

In certain circumstances you can appeal the increase; however, one-time capital gain income and IRA liquidations (including Required Minimum Distributions) and Roth Conversions are not on the list of reasons to appeal.

If you have filed an amended tax return that has changed your MAGI, you will need to provide it to the Social Security Administration.

If you disagree with the Social Security Administration, you can appeal in writing by completing a request for Reconsideration (Form SSA-561-U2).  http://www.socialsecurity.gov/online/ssa-561.html

It is important to consider the real "tax" cost of financial transactions taking into account all taxes, even those that appear to be hidden. By making certain tax elections you may be able to mitigate the impact of the Medicare Part B surcharge.

Below is a table outlining the monthly premiums for 2010.


Montly Part B Premiums for 2010

 
Income-related monthly adjustment amount

Total monthly
premium amount

Individuals with a MAGI of $85,000 or less
Married couples with a MAGI of $170,000 or less

$0.00

$110.50 Standard Premium

Individuals with a MAGI above $85,000 up to $107,000
Married couples with a MAGI above $170,000 up to $214,000

$44.20

$154.70

Individuals with a MAGI above $107,000 up to $160,000
Married couples with a MAGI above $214,000 up to $320,000

$110.50

$221.00

Individuals with a MAGI above $160,000 up to $213,000
Married couples with a MAGI above $320,000 up to $428,000

$176.80

$287.30

Individuals with a MAGI above $213,000
Married couples with a MAGI above $428,000

$243.10

$353.60

If you are married and lived with your spouse at some time during the taxable year, but filed a separate tax return, the following chart will apply:

 
Income-related monthly adjustment amount

Total monthly premium amount

Individuals with a MAGI of $85,000 or less

$0.00

$110.50

Individuals with a MAGI above $85,000 up to $129,000

$176.80

$287.30

Individuals with a MAGI above $129,000

$243.10

$353.60



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