Your high-income clients age 65 and up pay a federal income taxthat doesn’t impact younger or less affluent people.
|It’s the difference between their income-relatedMedicare Part B premiums and the basicpremium.
|For example: For a couple earning $175,000 per year, theincome-related Part B premium in 2015 is $146.90 per person permonth vs. $104.90 for the basic premium.
|For this couple, therefore, the tax is $84 per month, $1,008 peryear.
|Since there will be no Social Security Cost of Living Adjustment (COLA)in 2016, the basic Part B premium will be “heldharmless” with no increase.
|However, all income-related tiers are expected to see a 52percent increase over 2015.
|According to Boston College’s Center for Retirement Research (CRR),the monthly premium in the first income-related tier will rise from$146.90 to $223 per person per month.
|In the highest income tier, for couples with income of more than$428,000, the premium will rise from $335.70 to $509.80. The annualtax on a couple in the highest tier will be $9,718 above the basicpremium.
|Only a small percentage of Medicare participants payincome-related premiums. So, why is their 2016 Part B premiumskyrocketing, while it remains flat for most others?
|The reason, says CRC, is that federal law prevents the basicPart B premium from rising for any year in which there is zero COLAin Social Security benefits to offset it.
||Without this provision, the 2016 basic Part B premium would be$120.70 per month.
|But since the Medicare trust fund is losing the differencebetween $120.70 and $104.90 per person per month for mostparticipants, costs must rise more on high-income participants tokeep the system solvent.
|What can you do to help high-income retired clients cushionextra costs?
|1. First, let them know higher Part B premiums are coming in2016 and help them adjust budgets.
|2. Secondly, it’s too late to reduce their modified adjustedgross incomes (MAGI) and move them into a lower income-related tierin 2016. Medicare usually looks back at MAGI as reported from thesecond previous year for this purpose--i.e., MAGI reported for the2014 tax year determines 2016 premiums.
|But you can help clients plan ahead. By taking steps now toreduce 2015 MAGI, you can hold down Part B premiums in 2017.
|3. Finally, let clients know that this problem is cumulative. Inany future year in which the COLA is zero, they will paytwice--first by not receiving any COLA and secondly by having topay higher Part B premiums, to fill funding gaps caused by thehold-harmless benefit enjoyed by other retirees.
|Emphasize that higher Medicare premiums are a selective federalincome tax levied on only one segment of thepopulation--high-income seniors. But it’s a tax that can bemanaged, to a degree, with planning.
|Read CCR’s full report on No Social Security COLA Causes Medicare Flap,including projected 2016 Part B premiums for all income tiers formore information.
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