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.
In any of those circumstances—even if they occurred a year or more ago—call 1-800-772-1213 to arrange an interview at a local Social Security office. Or you can download a form from the Web, fill it out and mail it. Either way, you must provide proof of the life-changing event—for example, copies of a death or marriage certificate, a divorce decree, documents relating to a change in work, or an insurance claim for property damage.
If Social Security accepts that your 2008 income has been reduced as a result of one of those events, you will not be required to pay the higher Part B premium in 2009, even if this was based on a windfall income you received in 2007. In other words, reduced income due to a life-changing event trumps the sale of a house (or any other one-time spike in income) that occurred two years earlier. When Social Security has revised its records, you’ll receive a refund of any money due to you.
What if you suddenly lose income from, for example, the stock market crash? Or if you or the IRS has made a mistake in your adjusted gross income? Neither is considered a life-changing event. In these circumstances, Social Security officials will accept an amended tax return or any other proof that the IRS has corrected its records as a basis for making a new determination for the year in question. Again, any overpayments will be refunded.
You can also request a new decision in these situations:
- If your tax-filing status for the year used to calculate your premium was “married filing separately” but you did not live with your spouse at any time during that year.
- If Social Security used three-year-old tax records to determine your current premium and you have a signed copy of your tax return from two years ago—or you sign a statement saying you were not required to file a tax return two years ago.
If you think Social Security has made a mistake in deciding that you should pay a higher Part B premium, you always have the right to ask Social Security to reconsider. But its response will be based on the rules above. If you don’t agree with the final decision, you can also take the matter through several further levels of appeal.
For more detailed information—including how Social Security calculates the basis for a higher premium and how to request a reconsideration or make an appeal—see the official publication “Medicare Part B Premiums: New Rules for Beneficiaries With Higher Incomes 2009.”
Patricia Barry is a senior editor at the AARP Bulletin.