Author: Leann

IRS Releases Standard Mileage Rates for 2023

Andrew Steffensmeier

Specializes in small business preparation and planning, investment advisory services, business tax planning services

Email

The standard mileage rate has again increased for those deducting business miles. See the details below.

Due to recent increases in the price of fuel, the IRS has increased the optional standard mileage rates for computing the deductible costs of operating an automobile for business purposes for 2023. However, the standard mileage rates for medical and moving expense purposes remain the same for 2023. The standard mileage rate for computing the deductible costs of operating an automobile for charitable purposes is set by statute and also remains unchanged.

For 2023, the standard mileage rates are as follows:

  • Business use of auto: 65.5 cents per mile (up from 62.5 cents for the period July 1, 2022, to December 31, 2022*) may be deducted if an auto is used for business purposes. If you are an employee, your employer can reimburse you for your business travel expenses using the standard mileage rate. However, if you are an employee and your employer does not reimburse you for your business travel expenses, you cannot currently deduct your unreimbursed travel expenses as miscellaneous itemized deductions.
  • Charitable use of auto: 14 cents per mile (the same as for 2022) may be deducted if an auto is used to provide services to a charitable organization if you itemize deductions on your income tax return. Your charitable deduction may be limited to certain percentages of your adjusted gross income, depending on the type of charity.
  • Medical use of auto: 22 cents per mile (the same as for the period July 1, 2022, to December 31, 2022*) may be deducted if an auto is used to obtain medical care (or for other deductible medical reasons) if you itemize deductions on your income tax return. You can deduct only the part of your medical and dental expenses that exceeds 7.5% of the amount of your adjusted gross income.
  • Moving expense use of auto: 22 cents per mile (the same as for the period July 1, 2022, to December 31, 2022*) may be deducted if an auto is used by a member of the Armed Forces on active duty to move, pursuant to a military order, to a permanent change of station (unless such expenses are reimbursed). The deduction for moving expenses is not currently available for other taxpayers.

*Last year, in a rare mid-year adjustment to the standard mileage rates, the IRS increased the rates for the second half of 2022.

The IRS has released the optional standard mileage rates for computing the deductible costs of operating an automobile for business, charitable, medical, and moving expense purposes for 2023.

1) The Centers for Medicare & Medicaid Services, 2022

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of NE. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2023.

Retirement Investors Get Another Boost from Washington

Andrew Steffensmeier

Specializes in small business preparation and planning, investment advisory services, business tax planning services

Email

SECURE 2.0 will usher in many changes for retirement plans and IRAs over the next several years.

Amid the 1,650-page, $1.7 trillion omnibus spending legislation passed by Congress last week and signed by President Biden were several provisions affecting work-sponsored retirement plans and, to a lesser degree, IRAs. Dubbed the SECURE 2.0 Act of 2022 after the similarly sweeping Setting Every Community Up for Retirement Enhancement Act passed in 2019, the legislation is designed to improve the current and future state of retiree income in the United States.

“This important legislation will enhance the retirement security of tens of millions of American workers — and for many of them, give them the opportunity for the first time to begin saving,” said Brian Graff CEO of the American Retirement Association.

What Does the Legislation Do?

The following is a brief summary of some of the most notable initiatives. All provisions take effect in 2024 unless otherwise noted.

  • Later age for required minimum distributions (RMDs). The 2019 SECURE Act raised the age at which retirement savers must begin taking distributions from their traditional IRAs and most work-based retirement savings plans to 72. SECURE 2.0 raises that age again to 73 beginning in 2023 and 75 in 2033.
  • Reduction in the RMD excise tax. Current law requires those who fail to take their full RMD by the deadline to pay a tax of 50% of the amount not taken. The new law reduces that tax amount to 25% in 2023; the tax is further reduced to 10% if account holders take the full required amount and report the tax by the end of the second year after it was due and before the IRS demands payment.
  • No RMDs from Roth 401(k) accounts. Bringing Roth 401(k)s and similar employer plans in line with Roth IRAs, the legislation eliminates the requirement for savers to take minimum distributions from their work-based plan Roth accounts.
  • Higher limits and looser restrictions on qualified charitable distributions from IRAs. The amount currently eligible for a qualified charitable distribution from an IRA ($100,000) will be indexed for inflation. In addition, beginning in 2023, investors will be able to make a one-time charitable distribution of up to $50,000 from an IRA to a charitable remainder annuity trust, charitable remainder unitrust, or charitable gift annuity.1
  • Higher catch-up contributions. The IRA catch-up contribution limit will be indexed annually for inflation, similar to work-sponsored catch-up contributions. Also, starting in 2025, people age 60 to 63 will be able to contribute an additional minimum of $10,000 for 401(k) and similar plans (and at least $5,000 extra for SIMPLE plans) each year to their work-based retirement plans. Moreover, beginning in 2024, all catch-up contributions for those making more than $145,000 will be after-tax (Roth contributions).
  • Roth matching contributions. The new law permits employer matches to be made to Roth accounts. Currently, employer matches must go into an employee’s pre-tax account. This provision takes effect immediately; however, it may take some time for employers to amend their plans to include this feature.
  • Automatic enrollment and automatic saving increases. Beginning in 2025, the Act requires most new work-sponsored plans to automatically enroll employees with contribution levels between 3% and 10% of income, and it automatically increases their savings rates by 1% a year until they reach at least 10% (but not more than 15%) of income. Workers will be able to opt out of the programs.
  • Emergency savings accounts. The legislation includes measures that permit employers to automatically enroll non-highly compensated workers into emergency savings accounts to set aside up to $2,500 (or a lower amount that an employer stipulates) in a Roth-type account. Savings above this limit and any employer matching contributions would go into the traditional retirement account.
  • Matching contributions for qualified student loan repayments. Employers may help workers repaying qualified student loans simultaneously save for retirement by investing matching contributions in a retirement account in the employee’s name.
  • 529 rollovers to Roth IRAs. People will be able to directly roll over up to a total of $35,000 from 529 plan accounts to Roth IRAs for the same beneficiary, provided the 529 accounts have been held for at least 15 years. Annually, the rollover amounts would be subject to Roth IRA contribution limits.2
  • New exceptions to the 10% early-withdrawal penalty. Distributions from retirement savings accounts are generally subject to ordinary income tax. Moreover, distributions prior to age 59½ also may be subject to an early-withdrawal penalty of 10%, unless an exception applies. The law provides for several new exceptions to the early-withdrawal penalty, including an emergency personal expense, terminal illness, domestic abuse, to pay long-term care insurance premiums, and to recover from a federally declared disaster. Amounts, rules, and effective dates differ for each circumstance.
  • Saver’s match. Low- and moderate-income savers currently benefit from a tax credit of up to $1,000 ($2,000 for married couples filing jointly) for saving in a retirement account. Beginning in 2027, the credit is re-designated as a match that will generally be contributed directly into an individual’s retirement account. In addition, the match is allowed even if taxpayers have no income tax obligation.
  • More part-time employees can participate in retirement plans. The SECURE Act of 2019 required employers to allow workers who clocked at least 500 hours for three consecutive years to participate in a retirement savings plan. Beginning in 2025, the new law reduces the second component of that service requirement to just two years.
  • Rules for lifetime income products in retirement plans. The Act directs the IRS to ease rules surrounding the offering of lifetime income products within retirement plans. Moreover, the amount that plan participants can use to purchase qualified longevity annuity contracts will increase to $200,000. The current law caps that amount at 25% of the value of the retirement accounts or $145,000, whichever is less. These provisions take effect in 2023. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxable as ordinary income, and withdrawals prior to age 59½ may be subject to a 10% penalty tax.
  • Retirement savings lost and found. The Act directs the Treasury to establish a searchable database for lost 401(k) plan accounts within two years after the date of the legislation’s enactment.
  • Military spouses. Small businesses that provide immediate enrollment and vesting to military spouses in an eligible retirement savings plan will qualify for new tax credits. This provision takes effect immediately.

These provisions represent just a sampling of the many changes that will be brought about by SECURE 2.0. We look forward to providing more details and in-depth analysis applying to both individuals and business owners in the weeks to come.

This information is not intended for tax, legal, investment, or retirement advice or recommendations.

Sources: The Wall Street Journal, CNBC, Bloomberg, Kiplinger, Fortune, Plan Sponsor magazine, National Association of Plan Advisors, and the SECURE 2.0 Act of 2022

1Bear in mind that not all charitable organizations are able to use all possible gifts. It is prudent to check first. The type of organization you select can also affect the tax benefits you receive.

2As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified education expenses. For withdrawals not used for qualified education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% tax penalty. The tax implications of a 529 savings plan should be discussed with your legal and/or tax professionals because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors. Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses – which contain this and other information about the investment options, underlying investments, and investment company – can be obtained by contacting your financial professional. You should read these materials carefully before investing.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of NE. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2023.

Taxes in Retirement

Nancy Brozek

Specializes in construction accounting, business tax planning, investment advisory services

Email

With Social Security benefit payments increasing nearly 9% this year, you may need to rethink your retirement tax planning.

INCOME MATTERS

If you started working part-time to offset some of the recent price inflation, this increase in your Social Security payments might make some or more of it subject to federal income taxes. If you file as an individual and your combined income is between $25,000 and $34,000, up to half of your benefit may be subject to income taxes. Social Security defines combined income as your adjusted gross income, plus nontaxable interest, plus one-half of your Social Security benefit.

CONSIDER A REDUCTION

With the possibility of being in a higher tax bracket this year, due to increased Social Security benefits, consider cutting back on withdrawals from your qualified retirement plans. If you can avoid taking more than your required minimum distribution (RMD) in 2023, you might be able to limit your tax liability.

If you need more than your RMD, consider pulling funds from a taxable brokerage account where you’ll pay the lower long-term capital gains rates if you held investments for more than a year.

Also consider qualified withdrawals from a Roth IRA, a Roth 401(k), or a health savings account (HSA), which would not be subject to federal income tax and wouldn’t have an impact on how your Social Security benefit is taxed.

This year’s cost of living adjustment can help you keep up with higher prices. And in the short run, managing your withdrawals may help you smooth out the tax bumps during a period of high inflation.

Figuring out withdrawals from retirement and brokerage accounts can be complicated, so it may help to work with an advisor. But even if you do it yourself, try to withdraw from your Roth and HSA accounts last, allowing those assets to grow tax-free longer. Withdrawals from all three types of accounts in the same year can help manage combined taxable income.

source: https://e.clientlinenewsletter.com/mcmillcpasandadvisors

Business Valuation Methods for Optometrist Practices

Jared Faltys

Specializes in financial planning, business tax planning, investment advisory services

Email

“What is my optometrist practice worth?”

This is a question we get frequently from the medical community, and optometrists are no different.  Today and in the near future, there are a large number of professionals retiring nationwide who are curious about the worth of their business.

The unfortunate part is that most optometrists don’t know what their practice is worth or don’t follow the right business valuation methods to make their practice more valuable when it comes to retirement. The value of the practice in many cases is the largest piece of the retirement nest egg. 

You may evaluate the retirement statements from month to month but don’t take the time to stop and analyze the value of the largest asset — your practice. Many times, we get the phone call from the optometrist saying, “Hey, I’m ready to retire…” and they simply haven’t thought about implementing the steps to make their practice more valuable.

Here at McMill Advisors and CPAs, we believe it takes at least two years to maximize the value and make the practice desirable to buyers. If you’re planning your retirement throughout Northeast Nebraska, take the time to plan ahead and make your practice more valuable with these tips.

  1. Focus on EBITDA

The definition of value can come in different forms. One obvious form that most buyers will use to measure is by evaluating your EBITDA. EBITDA stands for earnings before interest, taxes, depreciation, and amortization and is a comprehensive measure of a business’ worth.

Interest, taxes, depreciation, and amortization are called “add-backs.” These are numbers that are technically expenses when it comes to your tax return and financials, but they are added back to get a better understanding of cash flow. As you get closer to selling your practice, you need to look yourself in the mirror and say this three times, “I want to increase my EBITDA, I want to increase my EBITDA, I want to increase my EBITDA!” 

There are many variables that go into the valuation of practices, but EBITDA is the one that is focused on throughout negotiations. Later, I will describe why EBITDA is so important when it comes to selling the business.

  1. Compare Yourself to Your Peers

How well do you look compared to your peers? Benchmark yourself against competitors and work on the areas that need improvement. Ratios of wages to revenue, cost of goods sold to sale of goods, and profit to revenue are all good metrics to analyze compared to the industry. Your associations have great statistics to work with and you need to know how you stack up against them.

  1. Prepare to Sell Your Business

Don’t just show up and think you will sell your business overnight. It’s a preparation over time.   Determine what kind of business you have to offer for sale. There are many things a buyer will look for: 

  • Is this a mom & pop shop?
  • Is this a sole doctor’s office?
  • Is this a multi-doctor office? 

The more and more you can get away from “John/Jane Doe Optometrist Office” versus a generic name of a clinic, the better off you typically are. Buyers want to buy a franchise or an enterprise. Buyers are less likely to pay more for a mom & pop shop that is tied solely to a single doctor.

  1. Organize Your Financial House

Are your financials and tax returns easy to understand and do they both tell the same story?  Sometimes there can be a difference between the financials you use internally, to the tax return, to the information reported to the bank, depending on how information is prepared. 

We want to make sure there is consistency on reporting the operations. If there is inconsistency, then the buyers start to wonder what they’re actually buying when they don’t know for sure what the numbers are. The buyers look for consistency and they want to trust the numbers ideally over a period of three to five years.

  1. Diversify Services and Products

How many of your services are related to the elderly? How many of your services are related to families? Are you a practice known for a certain area or are you well-diversified across the community? Do you take on all insurances? Do you take on some insurances that aren’t profitable? Are you taking on Medicaid patients? All of these questions should also be factored into the valuation of your practice.

  1. Consider Your Internal Infrastructure and Climate

Do you have the personnel to run the business without much oversight and are there talents within the clinic that can be utilized for a buyer that might be attractive? These talents may include a billing specialist, a frame specialist, a lab specialist, and so forth. Having these additional weapons at your disposal can make your practice more valuable.

Diving Into EBITDA

Now that you have the various items that buyers look at, let’s talk about the term EBITDA and why that is so important. 

EBITDA is the typical measurement of the success of the organization from year to year. Buyers will typically want three to five years of history to see what the overall trend of the business is and if it’s trending upward. 

They look for variances and relationships between some key areas, including:

  • If cost goods go up on frames, why did that happen if sales didn’t go up?
  • What is your gross profit margin? Has it stayed the same?
  • Based on the industry, how do your wages compare to your overall gross sales?
  • How does your cost of goods sold compare to merchandise sales, and how does that compare to the industry standards?
  • How does the bottom line compare to the industry standards? Is it in the range of roughly around 13-16% of revenue? 
  • What are you paying your doctors? Is it around 17-20% of overall production? 

You want to set yourself to become profitable, as much as you can, before the sale so that you show a trend of profitability.  It is also ideal if you meet or exceed industry benchmarks. 

Breaking Down Multiples

Once the numbers are compared to the benchmarks, the industry, other similar practices, then EBITDA tends to come into play to where a “multiple” is applied. What I refer to as the multiple is a runway of time. This is the amount a buyer is willing to pay for a business based on EBITDA, typically anywhere from two to nine times EBITDA, as the multiple. 

What that really means is the buyer is willing to pay two to nine years worth of earnings (or cash flow) that the company has historically generated. The obvious statement would be the higher the multiple, the more runway a doctor gets for the value of the clinic. 

The easiest and the most widely used valuation method is the multiple of EBITDA. As you generate higher cash flow, then the multiple goes up to where it is more attractive for larger clinics to acquire.  Whether it’s strategic that they want that location in a specified area, it’s a nice product mix that fits their offering, or they are going after an overall large EBITDA to blend into their operations these are all factors that come into play. 

Why Are You Selling? 

Once all of this is determined, the seller needs to step back and ask the question, “Why am I selling?” If it’s for retirement, then it’s an obvious reason — you’ve worked hard and want to enjoy the fruits of your labor.  If you’re looking at getting a high price tag or a high multiple, I would ask the questions, “Are you still having fun at your job?” or “Do you think the future of your industry is positive, the future of your business in your location is promising, and you can continue to keep growing the practice?” 

If you’re still having fun or if you still feel that the future of your company is extremely positive, then I want you to take a step back and just do a soul search to determine if this is the right decision of going down the road of merging with a practice or selling.

When you do sell out and after you receive those funds, what do you do next mentally and physically?  That’s what you must answer before you go down the road of selling the business. You must understand that once that money hits your account, you will have some form of loss of control.

Control of a company will exchange hands. There could be a consolidation of operations and you must understand that there may be long-term employees that no longer are employed after day one when the new clinic is formed. Will you be able to serve patients and for how long?

If you did a soul search and you like the looks of that future — having money in hand without the risk of ownership — then maybe that fits you. Or you can exit the industry entirely and do something else with your life. I think business owners that want to sell never sit down and think, “Yeah, the money is nice, but what is my next step in life?” That’s the biggest thing that gets missed and it’s the decision that should have the largest amount of time spent before being made.

What’s Next? 

To conclude, start getting your ducks in a row. Prepare your practice for sale by getting your finances in order, setting up more of a clinic atmosphere, a solid positive culture, and a business that can run without you making daily decisions. That is what is attractive to a buyer. All of this doesn’t happen overnight. You must start planning for the exit of yourself out of a business and start asking these questions earlier rather than later.

I think Warren Buffet said it best when he said, “Valuing a business is part art and part science.” The science is just looking at the pure numbers, whether it’s a calculation of the EBITDA, looking at the value of the assets, or looking at the hard data.

Where the art comes into play is all the intangibles, like I described above — location, culture, staff in place, multi-doctor clinic/single-doctor clinic, type of revenue, insurance or private pay, the volume of frames and other incidentals being sold to patients, or the average age of patients and how this plays into the buyer’s desires.

When you’re looking to understand business valuation methods, it can be for various reasons. Regardless of the reason you’re selling, the main point remains the same — getting a proper valuation of your practice can provide the knowledge of what it takes to make your practice more valuable over time.

There really is no hurry, as you should remember that the value of this business will always be there in some fashion. There is talk lately with all of the stimulus money and additional money out there, that it is assisting other clinics in acquiring businesses. 

With low capital gain rates and low interest rates, it’s the perfect environment to sell. I’m here to say that that is probably all true, but it’s not the perfect time to sell if you’re mentally not ready, if you’re still having fun, or if you don’t want to lose control.

Take a deep breath, take your time, and know that this is the most important asset in your financial picture and you need to do it right. If you have questions about this article or want to talk further on how this can apply to your practice in Northeast Nebraska, give us a call.

Get Ready for Tax Time

Lynndsy Beckmann

Specializes in small business preparation and planning, investment advisory services, QuickBooks consulting

Email

The new year means it’s time to make your resolutions. But it also means another tax season is here. Take time in January to get organized to make tax filing smooth for you and your tax professional.

ORGANIZE YOUR FORMS

You’ll receive the bulk of your tax forms by January 31. But if you believe you’re missing one, contact the appropriate company to request a copy.

BUNDLE IT UP

Along with tax forms, you’ll want to get other financial documents and information together before meeting with your tax professional. Consider if you have:

  • Business financial statements
  • Names, dates of birth, and Social Security numbers for any new dependents
  • Educational expenses
  • Child care
  • Gifts received or given
  • Retirement plan contributions
  • Severance pay
  • Foreign assets
  • Rental income
  • Medical expenses
  • Estimated payments in 2022

Most tax professionals will provide you with their tax organizer that will walk you through all tax areas that may apply to you, so you don’t overlook anything.

source: https://e.clientlinenewsletter.com/mcmillcpasandadvisors

Purchasing a Farm: Land Depreciation vs. Amortization

Jared Faltys

Specializes in financial planning, business tax planning, investment advisory services

Email

Purchasing a farm may seem like a good investment opportunity. However, with further analysis, the net return is often much lower than anticipated. This typically happens because investors also view agricultural land as a stable investment. Not to worry — there are ways to immediately improve the ROI on the land through potential tax benefits. When you purchase farmland, you may be able to depreciate or amortize various aspects of the farm. 

Amortization vs. Depreciation

When purchasing farmland, you will acquire not only the land but other assets that accompany it as well. Since many of these assets will eventually deteriorate and become unusable, their cost can be expensed based on their life expectancy. Amortization and depreciation are ways to calculate the value of these assets. 

Depreciation

Depreciation is a way to calculate the total cost of an asset over its useful life. It is used to establish the cost of obtaining the asset compared to the income it provides. Depreciation is used for tangible assets, such as buildings, machinery, or equipment. 

Amortization

Amortization is also a way to calculate the total cost of an asset over its useful life. However, amortization is used for intangible assets, unlike depreciation. Examples of intangible assets include trademarks, patents, and nutrients within the soil. 

Understanding these terms will help you during the prospecting phase of purchasing a farm, so you can be on the lookout for specific assets that you will be able to write off and gain a higher return on your investment. 

Depreciating Farm Assets

When considering a farm to purchase, you should be looking for specific structures that you file as depreciating assets to provide savings on your tax bill. Some of these structures may include fences, grain bins, farm sheds, irrigation systems, and other tools and equipment. Having the ability to write off these assets when tax season rolls around will help you offset the amount you are paying for the farm. 

Amortizing Farm Assets

Did you know that in certain instances you are able to amortize part of the physical dirt on your farmland? While uncommon, this is an approach that some choose to take and the return can be substantial. 

Overall, the general understanding of buying dirt is that you are unable to depreciate it until you sell the ground.  However, since farmland is commonly passed down throughout generations, farmers typically won’t ever see this value. 

How to Amortize Farm Assets

To amortize dirt on your land, the first step is to determine if there are more fertilizer nutrients in the ground than what is considered average. To check the levels of your land, you can hire an agronomist to collect soil samples from areas around the farm to analyze the nutrient values. 

Once you have this analysis, you can reach out to your local university’s agriculture department. Typically, they will perform studies to determine what is considered average for the embedded nutrients within their local soil. You can compare your specific dirt to the average values collected by the university to determine whether or not your land’s nutrient values are above average. If you have any values over the baseline, you can make a case that the ground can be amortized over the lifetime of those nutrients. 

McMill Can Help

Although the initial net return on farmland may not appear to be as high as you would expect, there are plenty of options to help increase your return on investment. Utilizing depreciating and amortizing assets will help you balance your return against your investment. 

McMill CPAs and Advisors are here to answer any other questions you still have about purchasing farmland. As your local experts in Norfolk, Nebraska, we can’t wait to assist you in your farming business along with other areas like tax planning, retirement planning, and risk management. Reach out to us today for more information.

Medicare Open Enrollment Is Here: How Are Costs Changing for 2023?

You can view more information on Medicare benefits in the Medicare & You 2023 Handbook and access a Medicare plan finder tool that allows you to compare health and drug coverage options at medicare.gov.

You can also call your State Health Insurance Assistance Program (SHIP) for free, personalized counseling. Visit shiptacenter.org or call the toll-free Medicare number 800-MEDICARE (800-633-4227) to find the phone number for your state.

Medicare Part C (Medicare Advantage) costs vary by plan, but the projected average premium for 2023 plans is $18 (down from $19.52 in 2022). You will also have to pay the Medicare Part B premium.

Jared Faltys, CPA/PFS/CPFA

Medicare’s Open Enrollment Period — which runs from October 15 through December 7 — is your annual opportunity to switch your current Medicare health and prescription drug plans to ones that better suit your needs. Just in time for Open Enrollment, 2023 Medicare premiums, deductibles, and other costs have been announced, and surprisingly, some of these costs are lower than they were last year.

What to consider

Start by reviewing any materials your plan has sent you. Look at the coverage offered, the costs, and the network of providers, which may be different than last year. Maybe your health has changed, or you anticipate needing medical care, or new or pricier prescription drugs. If your current plan doesn’t meet your health-care needs or fit your budget, you can make changes. But if you’re satisfied with what you currently have, you don’t need to do anything. The coverage you have will continue.

During Open Enrollment, you can:

  • • Switch from Original Medicare to a Medicare Advantage Plan
  • • Switch from a Medicare Advantage Plan to Original Medicare
  • • Change from one Medicare Advantage Plan to a different Medicare Advantage Plan
  • • Change from a Medicare Advantage Plan that offers prescription drug coverage to a Medicare Advantage Plan that doesn’t offer prescription drug coverage
  • • Switch from a Medicare Advantage Plan that doesn’t offer prescription drug coverage to a Medicare Advantage Plan that does offer prescription drug coverage
  • • Join a Medicare prescription drug plan (Part D)
  • • Switch from one Part D plan to another Part D plan
  • • Drop your Part D coverage altogether

Any changes made during Open Enrollment are effective as of January 1, 2023.

Medicare Part B (Medical Insurance) costs for 2023

Most people with Medicare who receive Social Security benefits will pay the standard monthly Part B premium of $164.90 in 2023. This premium is $5.20 lower than it was in 2022 due to lower-than-projected spending for a new drug, Aduhelm, and other Part B items and services.1

People with higher incomes may pay more than the standard premium. If your modified adjusted gross income (MAGI) as reported on your federal income tax return from two years ago (2021) is above a certain amount, you’ll pay the standard premium amount and an Income-Related Monthly Adjustment Amount (IRMAA), which is an extra charge added to your premium, as shown in the following table.

You filed an individual income tax return with MAGI that was:You filed a joint income tax return with MAGI that was:You filed an income tax return as married filing separately with MAGI that was:Total monthly premium in 2023 is:*Total monthly premium in 2023 immunosuppressive drug coverage only is:
$97,000 or less$194,000 or less$97,000 or less$164.90$97.10
Above $97,000 up to $123,000Above $194,000 up to $246,000N/A$230.80$161.80
Above $123,000 up to $153,000Above $246,000 up to $306,000N/A$329.70$258.90
Above $153,000 up to $183,000Above $306,000 up to $366,000N/A$428.60$356.00
Above $183,000 and less than $500,000Above $366,000 and less than $750,000Above $97,000 and less than $403,000$527.50$453.10
$500,000 and above$750,000 and above
$403,000 and above
$560.50
$485.50

People with higher incomes may also pay a higher premium for a Medicare Part D prescription drug plan, because an IRMAA will be added to the Part D basic premium based on the same income limits in the table above. Part D premiums vary, but the average basic monthly premium for 2023 is projected to be $31.50 (down from $32.08 in 2022).

People with Medicare Part B must also satisfy an annual deductible before Original Medicare starts to pay. For 2023, this deductible is $226 (down from $233 in 2022).

*This premium applies to a new benefit that extends coverage for immunosuppressive drugs for people who qualify for Medicare coverage due to end-stage renal disease. Prior to 2023, Medicare coverage, including immunosuppressive drug coverage, ended 36 months after a successful kidney transplant. Beginning January 1, 2023, Medicare will offer a new benefit that will help continue to pay for immunosuppressive drugs beyond 36 months for people who don’t have other health coverage. It does not cover other items or services. Rates shown apply to people who file individual or joint tax returns. Premiums for beneficiaries filing as married filing separately are different.

Medicare Part A (Hospital Insurance) costs for 2023

  • • Part A deductible for inpatient hospitalization: $1,600 per benefit period (up from $1,556 in 2022)
  • • Part A premium for those who need to buy coverage: up to $506 per month (up from $499 in 2022) — most people don’t pay a premium for Medicare Part A
  • • Part A coinsurance: $400 per day for days 61 through 90, and $800 per “lifetime reserve day” after day 90, up to a 60-day lifetime maximum (up from $389 and $778 in 2022)
  • • Part A skilled nursing facility coinsurance: $200 for days 21 through 100 for each benefit period (up from $194.50 in 2022)

1) The Centers for Medicare & Medicaid Services, 2022

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of NE. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2022.