5 Tips about Medicare

TaxMama® is hearing from readers or friends about issues they are encountering as they reach the dreaded (or desired) Social Security and Medicare ages.

Dear Family,

While working on a client’s tax return last month, I noticed that he was over 65. Still an active executive of a Fortune 100 company, his human resources department had informed him that he doesn’t need to file for Medicare, since he has full insurance coverage.

Opps! That’s bad advice. Here are 5 tips about Medicare:

1) At age 65, all Americans who are eligible for Social Security MUST register for Medicare. If not, we face penalties.

“In most cases, if you don’t sign up for Part B when you’re first eligible, you’ll have to pay a late enrollment penalty. You’ll have to pay this penalty for as long as you have Part B. Your monthly premium for Part B may go up 10% for each full 12-month period that you could have had Part B, but didn’t sign up for it.”

There may be a way around the penalties, but the Medicare site doesn’t describe that. So, if you’re eligible for Medicare Part B – sign up immediately, even if you don’t need to use it or pay for it!

Correction courtesy of Patricia Ann Chidester:

From the medicare.gov website:

Step 3: Decide if you want Part A & Part B

Most people should enroll in Part A when they turn 65, even if they have health insurance from an employer. This is because most people paid Medicare taxes while they worked so they don’t pay a monthly premium for Part A. Certain people may choose to delay Part B. In most cases, it depends on the type of health coverage you may have. Everyone pays a monthly premium for Part B. The premium varies depending on your income and when you enroll in Part B. Most people will pay the standard premium amount of $135.50 in 2019.

 

2) Next bit of news (you may have seen this on my Facebook or Twitter feeds). If you’re already on Social Security before you turn age 65, they will automatically enroll you in Medicare and mail you your card. You don’t have to go through the process of applying. In fact, if you try to apply online during the 3-month period before turning 65, you’ll just get an odd error message. But, to be safe, call the Social Security office near you to make sure they have started the process.

3) Tip to let your own Social Security account grow in value until you turn age 70.
“If you were born before January 2, 1954 and have already reached full retirement age, you can choose to receive only the spouse’s benefit and delay receiving your retirement benefit until a later date.”

Doing this, you need your spouse (or ex-spouse’s) permission to claim part of his/her benefits. (You must have been married for at least 10 years – and only one spouse may do this.) This doesn’t reduce their benefit at all. Your benefits grow by about 8% until age 70 – then you can switch. Folks who are still working and have reached age 66 are eligible to get these funds – even if they still work full-time. At age 66, you can collect Social Security benefits while working without having to pay the benefits back. (Of course, 85% of the funds you receive will be taxable – but, it’s basically free money, since you aren’t tapping into your own account.)

4) Don’t collect Social Security early (at age 62) if you cannot live on the benefits and your savings or investments. Why? Because if you are still working or have to run your business, you get two strikes against you.

  1. Your benefit is substantially lower than if you had waited until age 66 – nearly 18% less (73.3% of maximum benefit, instead of 91.1% at age 66). That will be your base benefit for the rest of your life.
    https://www.ssa.gov/planners/retire/1956.html
  2. If you earn more than the annual limit ( $17,640 for 2019), you have to pay back the money you received. You pay back the SSA, $1 for every $2 earned over that limit. (Of course, this isn’t affected by interest, dividends or investments. This only affects less affluent people who cannot afford to live on SS benefits alone.)

5) Incidentally, there’s one more benefit not to overlook, once you’re on Medicare. The Silver Sneakers program. https://www.silversneakers.com/  You might have free access to gyms or health clubs in your area as part of your Medicare provider’s plan. You do have choices about your supplemental coverage. So look for one that gives you wellness benefits.

We’re all getting older. Maybe it’s time to do some planning.

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

 

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