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Ask Ms. Medicare

Higher Income-Related Premiums for Part B

A one-time event like the sale of a house can mean having to pay a higher Medicare Part B premium.

Q. We’ve been told we have to pay a higher Part B premium for 2009 because we sold our house in 2007. Is this correct? I retired in 2008, so our income is much lower now than two years ago.

A. Yes, it’s correct up to a point. The money you made from the sale of a house—or from other one-off events such as cashing in an IRA or coming into an inheritance—is taken into account when the Social Security Administration decides whether you should pay the standard Part B premium ($96.40 a month in 2009) or a higher premium based on your income. However, certain life-changing events—and retirement is one of them—can alter that calculation.

Selling your house temporarily raises your income for one year. But this doesn’t translate into a higher Part B premium until two years later. That’s because the amount of your 2009 Part B premium is based on the tax return you filed in 2008 reporting your income for 2007. (In cases where a 2008 tax return is unavailable, it would be based on your 2007 return, which reflects your income in 2006.)

So even if your income is much lower this year, to get Part B medical benefits, you’re still required to pay the high-income surcharge for the “windfall” you received two years ago—except in specific circumstances described below. If your income fell to normal or was reduced in 2008, this will be reflected in your 2009 tax return, and you probably won’t have to pay the surcharge on your premium in 2010 and subsequent years.

Here’s how the higher-income Part B surcharge works in general. It’s levied only on people whose modified adjusted gross income (MAGI) is more than $85,000 or, in the case of married couples, $170,000. These amounts are raised each year. So capital gains from, say, the sale of a house may easily raise your income into that bracket for the year in question. According to circumstances and income levels, the surcharge adds between $38.50 and $211.90 a month to the regular Part B premium in 2009.

It’s important to know that you can ask Social Security to revise its assessment if your income drops, but only for certain life-changing events:

  • If you marry, divorce or have your marriage annulled.
  • If your spouse dies.
  • If you or your spouse stop working (including retiring and being laid off).
  • If you or your spouse have your work hours reduced.
  • If you lose income-generating property because of a disaster or other event beyond your control.
  • If your pension plan, or your spouse’s, is terminated or reduced.

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