How Does a Life Changing Event Impact My IRMAA?

You received an IRMAA determination letter in the mail. As a quick recap, IRMAA stands for (Income-Related Monthly Adjustment Amount).

IRMAA is the reason you might pay higher Medicare premiums. It includes higher Medicare Part B premiums and Medicare Part D premiums.

This letter is automatically generated based on the income reported to the Internal Revenue Service on your tax returns.

You might be wondering whether you can reduce, or even eliminate your IRMAA. In many situations, you can. One of the most common scenarios in which you could get rid of this extra charge is if you’ve had a life-changing event.

This article will help you understand:

• What is considered a life-changing event
• How reporting a life-changing event works
• Detailed information about each life-changing event, and how it might apply to your situation.

Let’s start with defining what a life-changing event actually is.

What is a Life-Changing Event? 

A life-changing event is a major life event that corresponds to a reduction of yearly income. The Social Security Administration (SSA) uses information reported on your income tax return to adjust your Medicare premiums.

However, a life-changing event may be more recent, and the SSA may have incorrect information. In most cases, the life-changing event is expected to lower future income. This means that in future years, your income will probably go down, and your IRMAAA may decrease too.

But that doesn’t help this year’s monthly premiums. That’s where the new initial determination comes in.

What is a New Initial Determination? 

A new initial determination is the revised decision that the SSA makes when you report your life-changing event. A new initial determination is not an appeal. It simply is a new determination that would have been made had the SSA known about your life-changing event.

According to the Social Security Website, if you meet the criteria for a new initial determination, there is no need to appeal the prior IRMAA decision.  While the SSA must always accept a request for an appeal, it is in everyone’s best interest to find the least difficult option.  

Seeking a new initial determination as a result of a life-changing event is much easier than the appeals process.   

If that’s the case, you can file Form SSA-44 (Medicare Income-Related Monthly Adjustment Amount-Life-Changing Event).  If the form is accepted, then your IRMAA surcharge would be adjusted based upon the new information that you’ve given. But there are some nuances to this, so it’s worth looking at a couple of things. 

Let’s then look at the policy for each of the life changing events, and see what is required. 

What events qualify as life-changing events?

According to the Social Security Administration (SSA), there are 8 qualifying life-changing events that would allow you to request a new initial determination: 

• Death of A Spouse 
• Marriage 
• Divorce/Annulment 
• Work Reduction 
• Work Stoppage 
• Loss of Income-Producing Property 
• Loss of Pension Income 
• Employer Settlement Payment 

So what is not a life-changing event?  Pretty much every other type of event, according to the SSA. The SSA states that anything not on the list of life-changing events does not qualify.  

The website goes on to cite some examples (not a complete list): 

• Ordinary loss of dividend income
• Higher medical expenses 
• Higher living expenses 
• Loss of child support  
• Loss of alimony 
• Capital gains from the voluntary sale of income-producing property 
• Roth conversions

It doesn’t mean that you might not be able to reduce your IRMAA, but you won’t be able to do so using Form SSA-44.   

Let’s take a closer look at each life changing event to see how it might impact your IRMAA.

Life changing events

Below, we’ve listed each of the life-changing events eligible for reconsideration. Additionally, we’ve listed the current policy, and required documentation to submit for reconsideration. Let’s start with the death of a spouse.

Life-Changing Event #1:  Death of spouse 

Policy:  Having a spouse pass away could result in a significant reduction in modified adjusted gross income (MAGI).

For IRMAA calculation purposes, MAGI is the sum of:

• Adjusted gross income as reported on your IRS tax return, plus
• Tax-exempt interest income (line 2a on your 1040)

This impact is particularly felt if that person was: 

• Still working
• A pension annuitant, or
• Otherwise had income that would not transfer to their spouse.

What to submit: 

• Proof of death for the year to be used. A copy of the death certificate will suffice.
• Tax information for the year to be used. This can be either:
  • An estimate of the MAGI & tax filing status for the year you are requesting to use, or
  • A signed copy of that years tax return, or amended return if that return shows a significant reduction in MAGI

Life-Changing Event #2:  Marriage 

Policy:  The income bracket that applies to a married couple filing a joint return are double that of single filers.  A marriage could cause the beneficiary’s tax filing status and MAGI to change.  

Reports of the marriage only apply to the reporting spouse.  If the non-reporting spouse is also affected by the life-changing event, it is that individual’s responsibility to contact SSA. 

What to submit: 

• Proof of marriage for the year to be used.  A copy of a marriage certificate will suffice. 
• Tax information for the year to be used.  This can either be:
  • An estimate of the MAGI & tax filing status for the year you are requesting to use 
  • A signed copy of that year’s tax return (or amended return) if that tax return shows a significant income decrease.

Life-Changing Event #3: Divorce or Annulment 

Policy:  A divorce could cause the tax filing status and MAGI to change, which could lower your premium amount.  Reports of the divorce only apply to the reporting spouse.  If the non-reporting spouse is also affected by the life-changing event, it is that individual’s responsibility to contact SSA. 

What to submit: 

• Proof of marriage termination, like a copy of the annulment or divorce decree. 
• Tax information for the year to be used.  This can either be:
  • An estimate of the MAGI & tax filing status for the year you are requesting to use 
  • A signed copy of the most recent tax return (or amended return) if that tax return shows a significant decrease in annual income.

Life-Changing Event #4:  Work Reduction 

Policy:  Medicare beneficiaries may qualify for use of a more recent tax year to determine the IRMAA amount based upon a reduction in either beneficiary’s or spouse’s work hours. This might include a partial retirement or shift from a full-time to part-time job. 

However, this only applies to the reporting spouse—each spouse must make this request separately.   

What to submit: 

• Proof of work reduction.  This could be:
  • An employer statement
  • Past and present paystubs that show a reduction in hours
  • Corporate minutes
  • A record of business transfer (for self-employed individuals)
  • Attestation, under penalty of perjury, regarding the work reduction.
• Tax information for the year to be used.  This could be either:
  • An estimate of the correct income & tax filing status for the year you are requesting to use 
  • A signed copy of the most recent tax return (or amended return) if that tax return shows a significant decrease in annual income.

Life-Changing Event #5:  Work Stoppage 

Policy:  Medicare enrollees might qualify for a new determination based upon income changes after the beneficiary, their spouse, or both of them, stop working. This might be because of retirement, lay-off, or a sale of a business or company.  

However, this only applies to the reporting spouse—each spouse must make this request separately.   

What to submit: 

• Proof of work stoppage.  This could be:
  • An employer statement
  • Past and present paystubs that show a reduction in hours
  • Corporate minutes
  • A record of business transfer (for self-employed individuals)
  • Attestation, under penalty of perjury, regarding the work reduction.
• Tax information for the year to be used.  This could be either:
  • An estimate of the correct income & tax filing status for the year you are requesting to use 
  • A signed copy of the most recent tax return (or amended return) if that tax return shows a significant decrease in annual income.

Life-Changing Event #6:  Loss of Income-Producing Property 

Policy:  A significant reduction of income due to lost income-producing property beyond the beneficiary’s or their spouse’s control. This might qualify Medicare recipients for a new initial determination.  

For SSA’s purposes, examples of income-producing property include: 

• Real property (like rental property or farmland) 
• Crops 
• Livestock 
• Vehicles used for business 

However, property that does not generate income will not be considered. As a result, loss of non-income producing property does not qualify as an LCE. Examples include: 

• Property held for investment that does not generate income (i.e. coin collection, stamps) 
• Real property used for purposes other than rental income, such as vacation homes and condos used for personal use.   

The other stipulation is that the loss must be beyond the beneficiary’s control. Donating, selling, or a voluntary transfer of income-producing property is not considered a loss. Therefore, voluntary transfers do not qualify for a new initial determination.  

Examples of circumstances that could be considered as out of a beneficiary’s control include: 

• Natural disasters 
• Disease affecting crops, livestock, or other animals 
• Arson 
• Buy-out of the property by a government under Eminent Domain 
• Theft 

However, this only applies to the reporting spouse—each spouse must make this request separately.  

What to submit: 

• Evidence that clearly documents the event.  This could include:
  • A filed tax return that documents loss of income from the property 
  • A statement from the beneficiary stating that they are not insured and will provide a filed tax return documenting the loss of income 
  • Insurance claims regarding the loss of income producing property 
  • An insurance adjuster’s statement 
  • Formal statement made by a policy owner to their insurer regarding the loss of income from the property 
  • In cases of investment fraud (theft), proof of conviction of the theft is required and the only acceptable proof. 
• Tax information for the year to be used.  This could be either:
  • An estimate of the current income & tax filing status for the year you are requesting to use 
  • A signed copy of the most recent tax return (or amended return) if that tax return shows a significant MAGI decrease.

Life-Changing Event #7:  Loss of Pension Income 

Policy:  A significant loss of income due to the reduction or cessation of certain pension types might qualify a beneficiary for a new initial determination.   

To qualify, the pension must be: 

• A traditional defined benefit pension plan or cash balance plan AND 
• Loss of income is due to:
  • Plan failure (through bankruptcy restructuring) OR 
  • A scheduled cessation that was a past beneficiary decision (i.e. a 20-year pension that recently ceased, instead of taking a lifetime pension option). 

What to submit: 

• Proof of the loss or reduction in MAGI due to pension plan failure.  This could either be:
  • A letter advising the beneficiary of the change in the annuity amount or cessation 
  • Signed copy of the filed federal tax return for the next year showing the lower income 

Life-Changing Event #8:  Employer Settlement Payment 

Policy:  A beneficiary may qualify for a new initial determination based upon a settlement payment from a current or former employer.  In other words, the settlement is a one-time event that shouldn’t have caused higher premiums.

This payment has to be the result of an employer’s (or former employer’s) closure, bankruptcy or reorganization.  However, this only applies to the reporting spouse—each spouse must make this request separately.   

What to submit: 

• Proof of settlement.  This could be:
  • A statement from the employer 
  • Court documents reflecting the settlement and terms 
  • Statement from the employer’s attorney stating settlement and terms. 
• Tax information for the year to be used.  This can either be:
  • An estimate of the MAGI & tax filing status for the year you are requesting to use. 
  • A signed copy of that year’s tax return (or amended return) if that tax return shows a significant reduction in MAGI. 

Conclusion 

Hopefully, you’ve found something that relates to your situation.  If that’s the case, filling out the SSA-44 and providing the supporting documentation is pretty straightforward.  

This can be done through your local Social Security office, or perhaps with assistance from your financial advisor. For those who would rather do this yourself, check out our step-by-step guide on completing the SSA-44 on your own!