“Medicare Is Taking Thousands From Our Retirement Checks.” As a CPA, I Know One Form Can Help

Medicare often bases premiums on income from two years earlier, which can leave new retirees paying far more than expected.

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Picture a message like this:

“My husband and I both retired recently, and we just enrolled in Medicare. The premiums taken from our Social Security checks are $284.10 a month each, not the $202.90 everyone keeps mentioning.

Social Security says that’s because of our income from a prior year, when we were still working. That money is gone now. Is there any way to challenge this?”

Let’s call her Lisa. She and her husband each have Part D drug coverage, and their modified adjusted gross income was about $250,000 in that earlier year.

Lisa is not mistaken. For the current premium year, the standard monthly Part B premium is $202.90.

But married couples filing jointly with modified adjusted gross income above $218,000 and up to $274,000 pay $284.10 each, according to the Centers for Medicare & Medicaid Services (1). Because they also have Part D drug coverage, they pay an additional $14.50 a month each (1).

That works out to $95.70 more per person each month. For the couple, that comes to $191.40 a month, or about $2,297 a year.

Why does older income matter? For premiums in the current year, the Social Security Administration says the figure generally comes from a tax return filed the year before for the prior tax year (2).

These surcharges “affect roughly 8% of people with Medicare Part B,” CMS says (1). They are designed for higher-income beneficiaries, and Lisa and her husband are no longer in that category.

I’ve been a CPA since 1981, and this is one of the most common and fixable shocks new retirees face. I’m also a Social Security and Medicare beneficiary, and I’ve dealt with this situation myself.

That is why I know Social Security has a form specifically for this situation (3).

Here are five things Lisa should know.

1. Retirement can qualify as a life-changing event

Form SSA-44 lets you request a reduction in your income-related monthly adjustment amount when a major life-changing event lowers your income (3).

One qualifying event is “Work Stoppage or Reduction,” which the form describes as a situation where you or your spouse stopped working or cut back your hours (3). Other qualifying events include marriage, divorce, the death of a spouse and the loss of pension income (3).

Getting the surcharge removed is only the first step. The next challenge is making sure it does not come back.

“Distributions from a traditional IRA are fully or partially taxable in the year of distribution,” the IRS says (5). So a large withdrawal in a single year can push income back above the limit.

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2. Proof is required, but the paperwork is manageable

For a work stoppage, the form asks for an original signed statement from your employer or your pay stubs. If you do not have that documentation, Social Security will accept your signed statement on the form, made under penalty of perjury (3).

Different life events require different evidence. For example, a spouse’s death requires a certified copy of the death certificate (3).

3. Ask Social Security to use a more recent income year

The form lets you request a more recent year. It “must be more recent than the year of the tax return information we used,” the form says (3). The qualifying life-changing event must have occurred in that year or earlier (3).

For Lisa, that means providing Social Security with an estimate of the couple’s current-year income. If that estimate is at or below $218,000 on a joint return, the standard premium applies (1). If the estimate later proves inaccurate, Social Security says it may make corrections later, including retroactive assessments or refunds (3).

Until then, that extra $191 a month has to be covered somehow.

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4. Filing is simpler than many people expect

You can sign in to your Social Security account and submit the form online, fax or mail it with your evidence to a Social Security office, or call 1-800-772-1213, according to the agency (4). When I completed my own form, I simply dropped it off at the local Social Security office.

You also do not need to file a formal appeal. Social Security says, “You don’t need to file an appeal if you’re requesting a new decision because you experienced one of the events listed,” as long as that event reduced your income (2).

5. Keep an eye on the next premium notice, too

Here is the part that catches people off guard. The surcharge is based on a tax return from two years earlier. For current premiums, that generally means the earlier tax year (2).

Follow that pattern, and the next premium notice will likely reflect another year when Lisa and her husband were still earning full salaries. If a surcharge notice arrives again, they should be ready to submit the form once more using their lower income.

My honest take

Medicare’s income-based surcharge is not a punishment for being wealthy. For new retirees, it is usually a timing issue. The government is looking backward at paychecks that have already ended.

The solution is one form and a bit of paperwork. Do not simply pay the higher amount and accept it.

You earned your retirement. Do not let an old tax return chip away at it.