As farmers approach retirement age, their income usually goes up and in some cases, the rise in income can be dramatic. This is usually due to all of the crop expenses being incurred during the year of harvest, but most of the crop being sold after that year.
There are ways of mitigating this rise in income which has been a topic for other blog posts. However, today we will discuss how this rise in income can affect the farmer’s Medicare Premium Payments.
The normal monthly Medicare Premium for 2021 is $148.50. However, if your income exceeds a certain threshold, then the Medicare Income-Related Monthly Adjustment Amount (IRMAA) will kick in. The following table shows what your premium would be assuming your annual income exceeds those threshold amounts. Once you go $1 over the threshold, your monthly premium kicks up to that amount.
As you can see, the increase in premium can be substantial even if your income is not that high. Income is based on what is reported on your income tax return from two years ago. For example, the 2021 premium would be based on your income shown on the 2019 tax return. This is similar to how FSA determines average AGI.
The minimum Medicare annual premium for a married couple is $3,564. If your income exceeds $750,000 your annual premium will be $11,798. You are allowed to get this premium amount abated if the income is due to certain circumstances such as the final year of retirement or other extra ordinary items.
As you approach retirement, it is important to work with your tax advisor to make sure you reduce both income taxes and Medicare Premium “taxes”. The marginal tax rate on one dollar too much of income can be very high.
