IRMAA Tags Recreational Gambler with Big Medicare Premium Increase

IRMAA Tags Recreational Gambler with Big Medicare Premium Increase

You may remember Jacob Bright from last week’s article about weekend gambling.

Bright reported $240,895 in gambling income on his Form 1040. He also claimed to have at least $240,895 in losses—but that’s the story in last month’s article.

For the purposes of this month’s article, let’s assume $240,895 in gambling income and $240,895 in losses. So that’s zero in reality and close to zero for federal income tax purposes.

But here’s the rub: Medicare premiums. Who goes gambling and thinks about their Medicare premiums?

Medicare determines your premiums based on your modified adjusted gross income, which is adjusted gross income plus certain tax-exempt income.

When assessing premiums, Medicare does not allow itemized deductions. Gambling losses are itemized deductions.

So let’s say that Bright has $50,000 of W-2 income in addition to his gambling winnings, giving him an adjusted gross income of $290,895. And let’s say this happened in 2021. And let’s also say that Bright is on Medicare.

In 2023, this year, Bright would have paid:

  • $527.50 a month for Medicare Part B ($6,330 for the year), and
  • $70.00 a month for Medicare Part D ($840 for the year).

If Bright had not gambled in 2021, his 2023 Medicare premiums would have totaled $1,979 ($164.90 x 12) versus $7,170. For Bright, the Medicare income-related monthly adjustment amount (IRMAA) created an extra annual tax of $5,191. And that’s a tax on zero net income from the gambling activity.

No Equitable Relief

You might think the additional Medicare tax caused by zero earnings is unfair. We agree.

But too bad. There’s no relief.

Social Security allows IRMAA relief for life-changing events such as marriage, divorce, and death. But you won’t find gambling as a possibility.

If you did experience a life-changing event, you would complete SSA-44 to request a reduction in your IRMAA.

Takeaways

The government has set it up so that the cost of Medicare is brutal in a variety of circumstances, such as for the recreational gambler who has to report winnings above the line and losses below the line.


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Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo


Daniel Morris
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