Most tax advisors learned last year that the Social Security law would prohibit the net amount of a Social Security check from decreasing because of increases in Medicare premiums. It’s called the “Hold Harmless” provision and is not an issue because a COLA is usually in place. That means Social Security benefits are greater than the increase in Medicare premiums.
However, in 2016, there wasn’t a COLA and Medicare premiums increased because of expenditures. There will be a COLA in 2017 but it will only be a tiny 0.2%. Medicare trustees announced in June that a 22% increase in Part B premiums may be mandatory.
This will affect the wealthy but others may also be affected and face a stiff increase in their Medicare Part B premiums. They will need to fall into certain categories in order to be protected. Kevin E. Thompson, CPA says “I have seen three (3) taxpayers thus far that have seen significant increases driven by their income levels.”
In 2017, premiums will be based on 2015 Medicare expenditures. (a 2-year “look back”) 75% will be paid from the general fund. (where Medicare taxes is generally collected.) 25% is paid using premiums that are charged to beneficiaries. Because the “hold harmless” was triggered in 2016, there are two base premiums. If you’ve already been paying for Medicare Part B in 2015, you will pay just short of $105 monthly. If you are a new Medicare beneficiary for 2016 you will be paying $121.80 per month. Both bases will see their fees increased in 2017.
Higher end seniors pay more in Medicare because there is a surcharge based on income. This is determined by adjusted gross income plus tax-exempt income. There are now 5 Medicare income brackets. The highest brackets (over $428,00 in annual income) pay about $390 per person per month. The lowest bracket pays $105 per month for Part B.
It’s possible that the “hold harmless” provision will be triggered again in 2017 even though there is likely to be a small COLA. That’s because Medicare premiums will need to increase to more than the net amount of the Social Security increase. The majority of Medicare beneficiaries will only have a small increase because they will be in the “hold harmless” groups.
- Those who are not already Medicare beneficiaries will be the ones to make up for the shortfall. They will be divided into the following groups.
- New Medicare beneficiaries who enroll as of November 2016.
- Medicare beneficiaries who do not have premiums withheld from their SS checks (includes people 65 and older who are on Medicare but are not receiving Social Security)
- Those with incomes that exceed the first level of income – $170,000 for a couple and $85,000 for an individual.
The following will not see an increase.
- Those who are receiving Social Security benefits in Nov and Dec 2016, AND
- Have Medicare premiums for December deducted from their SS checks, AND
- Have incomes lower than the first level of income.
The increase is estimated to be as high as 22%. It’s possible to pay as much as $467 per month per person in the highest income bracket of over $428,000 per couple and $214,000 for an individual.
Why you need an advisor who is able to understand the laws and how it will affect you.
It’s a complicated scenario. Kevin E. Thompson, CPA is here to help you understand the maze that is the Social Security System.
It’s important that your advisor determines whether or not you fall into the “hold harmless” group and will help you decide whether claiming Social Security by November 2016 and giving up delayed retirement credits of 8% is better than paying an increase in Medicare premiums.
Contact your tax advisor before making this important decision.