What Do You Mean I'm Subject to IRMAA?
For many retiring farmers, they think the pain is over when the write the check to the IRS for their final grain sales and equipment transactions. Even with good planning, this can be a hefty amount that may recur for several years during the transition process. Then comes the letter from the Social Security Administration – not to reward the producer with an additional benefit for years of hard work, but to remind them that their Medicare premium is going to be enormous because their final year of income was high. This issue tends to catch a lot of folks off guard.
The income related monthly adjustment amount (IRMAA) is a surcharge on Medicare premiums for taxpayers with incomes over a certain amount. For 2023, the standard cost of Medicare Part B per individual is $164.90 per month. As modified adjusted gross income grows so does the premium per the table below: Your Medicare premium is based on your modified adjusted gross income per your income tax return, but it is generally about 2 years behind. For instance, your 2023 premium is based on your 2021 tax return, as the 2022 returns were not yet filed when the determinations were made. IRMAA is calculated every year and goes up and down according to income.
In the final year or years of farming, incomes are often at their highest as the deferral of cash basis accounting comes home to rest. IRMAA adjustments can be surprising, irritating and sometimes difficult to manage on a new fixed income created by cash rent or the investment income generated by sale proceeds. IRMAA is up for debate though. There are appeal rights based on life changes such as marriage, divorce, reduced work hours, loss of income producing property due to an event beyond your control, and employer settlements. Early in 2023, I had two farmers appeal IRMAA on the basis that the 2021 year was their last year of farming which created a level of income that will not recur. Both appeals were approved and rather quickly (weeks not months). If you are in this situation, consider appealing to the Social Security Administration using the online method or completing Form SSA-561-U2.
Incomes in excess of $500,000 are not uncommon in the last year of many producers’ careers. If a simple appeal and explanation can reduce your surprise Medicare premium by over $4,000, why not take the time to make the request. IRMAA doesn’t have to win…make the case…the worst SSA can say is “No”.