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.
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.
What increases Medicare premiums? ›
If you're on Medicare or Medicare Advantage and your income rises above a certain threshold, the Social Security Administration adds an extra charge to the standard Plan B or Plan D premiums based on IRMAA, or the Income-Related Monthly Adjustment Amount.
Will my Medicare premiums go up if I sell my house? ›
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).
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.
Do capital gains count as modified adjusted gross income? ›
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 is counted for Medicare premiums? ›
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). Your MAGI is your total adjusted gross income and tax-exempt interest income.
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.
To request a new initial determination, submit a Medicare IRMAA Life-Changing Event form or schedule an appointment with Social Security. You will need to provide documentation of either your correct income or of the life-changing event that caused your income to decrease.
You can get your Part B reduction in 2 ways:
- If you pay your Part B premium through Social Security, the Part B Giveback will be credited monthly to your Social Security check.
- If you don't pay your Part B premium through Social Security, you'll pay a reduced monthly amount directly to Medicare.
If you don't get premium-free Part A, you pay up to $505 each month. If you don't buy Part A when you're first eligible for Medicare (usually when you turn 65), you might pay a penalty. Most people pay the standard Part B monthly premium amount ($174.70 in 2024).
How do you qualify for $144 back from Medicare? ›
To qualify for the giveback, you must: Be enrolled in Medicare Parts A and B. Pay your own premiums (if a state or local program is covering your premiums, you're not eligible).
Do capital gains count towards Medicare premiums? ›
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.
Do capital gains affect Social Security taxation? ›
It's important to note that while capital gains can increase one's adjusted gross income (AGI), they are not subject to Social Security taxes. However, a higher AGI from capital gains can potentially lead to a higher portion of Social Security benefits being taxable.
How does house sale affect Social Security? ›
Income limitations: Selling your home does not directly impact your eligibility for Social Security benefits. However, if you earn income from the sale, it could potentially affect the taxation of your benefits or eligibility for certain assistance programs.
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. For many people, MAGI is identical or very close to adjusted gross income. MAGI doesn't include Supplemental Security Income (SSI).
What income is used to determine Medicare premiums in 2024? ›
So, 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.
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.
