If you’re reading this article, you might have received an IRMAA (Income-related monthly adjustment amount) letter in the mail from the Social Security Administration. This is an additional surcharge to Medicare Part B and Part D premiums that applies to households with income above a certain level.
If that’s the case, you’re probably:
Annoyed at the possibility of paying more for Medicare than other people you might know, simply because of your income
Trying to see if there’s a way you can reduce or eliminate your IRMAA surcharge.
The Up Front About Your IRMAA
The bad news, up front, is that if the Social Security Administration (SSA) has correct and current information about your income situation, there’s probably not much that you can do to get out from under the IRMAA surcharge. The key terms here are:
Correct-Since the SSA receives their information from the IRS, the IRMAA determinations are based upon reported taxable income. If this information isn’t correct, then correcting the information might change your IRMAA (hopefully for the better).
Current-Since the IRS information is 2 years old (at best), it might not reflect current circumstances. Providing the most updated information (like informing the SSA of a life-changing event that reduces your income) might reduce or eliminate your IRMAA.
Most of the opportunities that Medicare beneficiaries have to reduce their IRMAA involve one or both of those things—making sure the SSA and the IRS have correct AND current information is probably the most straightforward route to reducing your IRMAA. In most situations, doing one of these two things will allow you to ask for a new ‘initial determination,’ which is likely to be the easiest route.
How Do I Get a New Initial Determination on my IRMAA?
Believe it or not, the Social Security Administration tries to make this as easy as possible. According to the Social Security Program Operations Manual System (POMS), there are 5 different circumstances that would allow a beneficiary to provide new information to receive a new initial IRMAA determination, and there is a specific set of instructions for each of them:
A life changing event.
An amended tax return filed with the IRS
Correcting IRS information
Using more updated tax information than what the SSA used (3-year old return instead of a 2 year old one)
A change in living arrangements when tax filing status is “Married filing separately,” which would allow the use of more lenient ‘Single, head-of-household, or qualifying widow(er) with dependent child tax filing status.’
In order to qualify for a new initial determination, the beneficiary must:
Have a qualifying circumstance, and
Request, either verbally or in writing, that the SSA uses other tax information
Keep in mind, a new initial determination is not an appeal. It’s simply a request for a new determination based upon different information. Let’s take a look at how the SSA evaluates each of these situations, starting with the life-changing event.
What is a life-changing event?
According to the SSA, there are eight qualifying life-changing events (LCE):
Death of a spouse
Divorce or annulment
Loss of income-producing property
Loss of employer pension
Receipt of settlement payment from a current or former employer
According to the SSA POMS for Life Changing Events, this is an exclusive list. In other words, if your life-changing event does not fall into one of these categories, then you cannot use the life-changing event form (known as SSA-44) to reduce your IRMAA. That references actually gives a list of common, but non-qualifying events (NQEs). This includes:
Ordinary loss of dividend income
Higher medical expenses
Higher living expenses
Loss of child support
Loss of alimony
Voluntary sale of income-producing property
What if this isn’t an option? Perhaps correcting tax return information might help. Let’s look at amended tax returns.
Amended tax returns
According to the SSA POMS for Use of Amended Income Tax Returns, the SSA can use an amended tax return instead of the tax data that they are currently using. With a couple of caveats.
The SSA can do this even if it disadvantages the beneficiary. So if you’re not careful, and your amended tax return causes your IRMAA to go up, the SSA will cheerfully increase your IRMAA. Keep this in mind.
The SSA will need proof that the IRS actually received the amended tax return. This usually comes in the form of a receipt letter (showing that the IRS accepted your filed tax return), or a transcript. Since amended tax returns cannot be done electronically (only paper copies are accepted), assume that this will take several months after filing.
The request must occur within 3 calendar years after the end of the tax year that the amended return was filed for.
All you need for this is a retained copy of the amended return and a receipt letter from the IRS, a transcript from the IRS, or a copy of the amended return from the IRS.
Perhaps it wasn’t the tax return that needed amending, but the information that the IRS gave to the SSA. In that case, you would request a new initial determination based on corrected IRS tax information.
Use of Corrected IRS Tax Data
If the IRS gave the wrong information to the Social Security Administration, there might be a way to work through this. However, it does take a little more effort, as it will usually require either:
A letter from the IRS documenting the factual data they originally received and the wrong information that was given, OR
A transcript from the IRS with new information and a copy of the filed tax return for the year the error occurred.
There are allowances for claims of identity theft, or in situations where the tax-exempt interest income (TEI) is different from what the IRS sent. Both of these are beyond the scope of this article, but are addressed in the POMS for Use of Corrected IRS Tax Data.
What if the IRS uses information that needs to be updated? There’s a procedure for that.
Beneficiary Provides 2-Year Old Tax Data When SSA Used 3-Year Old Tax Data to Determine the IRMAA
Usually, IRMAA is determined by using two-year old tax data. For example, 2020 IRMAA surcharges were determined by using 2018 tax return information. However, there might be situations where the IRS can only provide older information (i.e. 3-year old tax data). Usually, this is because a tax return was not filed (or required to be filed) that year.
If this applies to you, there is a procedure that applies as well: POMS for Beneficiary Provides 2 year Old Tax Data When SSA Used 3 year Old Tax Data to Determine the IRMAA.
The final reason you might be able to reduce your IRMAA is because you filed a tax return as “Married, Filing Separately (MFS)” and you actually lived apart the entire tax year.
Married Filing Separately – Lived Apart All Year
According to the POMS for Married, Filing Separately – Lived Apart All Year, when the IRS gives SSA information for MFS couples, the SSA assumes the coupled lived together at some point during the tax year. IRMAA determinations are done with a more aggressive schedule (harsher) for MFS couples than for other taxpayers. However, if the couple actually lived apart the entire year, then they are eligible for more lenient calculations using the ‘Single, Head-of-Household, and qualifying widow(er) with dependent child’ table. Here are the conditions:
Beneficiary has to state that he or she lived apart from his spouse throughout the entire year.
Unless otherwise noted by the SSA or IRS, the beneficiary has to attest under penalty of perjury that he or she has lived apart from their spouse all year.
Only that beneficiary will be processed for an IRMAA change unless the other beneficiary also attests under penalty of perjury.
There you have it. That’s an overview of the ways you might be able to use a new initial determination to adjust your IRMAA.
If you have questions about IRMAA, you should first contact the Social Security Administration, as they are the best people to help you navigate the paperwork and bureaucracy (believe it or not). However, if your experience isn’t a positive one, your financial advisor or financial planner should be able to help you look at your options. You can also check out this IRMAA FAQ (Frequently Asked Questions) page that we've posted.
If you don't have an advisor, but are ready to take the next step and work with one, you can learn more about how we work with clients right here.
The foregoing content reflects the opinions of Lawrence Financial Planning, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will recover or react as they have in the past.