Q&A: Recourse when the IRS goofs

Dear Liz: Is there a “court of last resort” when dealing with the IRS and the Treasury Department? I tried to buy an I bond using my tax refund. My tax preparer checked the appropriate box on the 1040 and submitted the form 8888. No bond was sent to me and I have been sent back and forth between the Treasury and the IRS multiple times. Finally the IRS admitted it did not notify the Treasury like it should have to generate the bond and it did apologize.

The Treasury says it can’t issue the bond without the notification from the IRS, and the IRS claims there is nothing it can do to fix the problem now. Is there any recourse whereby I can get my bond? I followed all of the rules, the 1040 was correct and to tell you the truth, I am unhappy that there does not seem to be a way of righting a wrong not of my making.

Answer: Start by contacting the Taxpayer Advocate Service, which was created in part to help resolve problems like this. You’ll find it at taxpayeradvocate.irs.gov.

Also consider reaching out to your congressional representatives, who have constituent services that may be able to help.

Q&A: Why your Medicare premium might jump unexpectedly and what you can do about it

Dear Liz: I find myself in a very bad tax/Social Security/Medicare loop that I am sure many other seniors are in as well. First, I sold my house and had to pay $50,000 in federal taxes. Now, I have to pay $900 a month for Medicare because I showed a high income for the year I sold the house. The “profit” went to settle my divorce, pay the tax bill and make a down payment on my next house. There’s no extra money.

But as a result of my Medicare premiums going up, I will either have to find a job — which is hard for seniors — or withdraw more from my retirement funds so I can pay my mortgage. Higher withdrawals will mean a higher income, higher taxes and higher Medicare premiums. This cycle will never end!

Answer: What you’re paying is called an income-related monthly adjustment amount or IRMAA. These adjustments, which are based on your income two years previously, can significantly raise premiums for Medicare’s Part B, which covers doctors’ visits, and Part D, which covers prescriptions.

The normal monthly Part B premium in 2022 was $170.10, for example, but IRMAA can boost that premium up to $578.30 for the highest-income recipients. IRMAA added $12.40 to $77.90 to monthly Part D premiums in 2022.

If your premiums are $900 as a single person, you’re likely also paying for a supplemental or Medigap plan that covers deductibles and co-pays. You may also be paying a premium penalty if you started Medicare late.

There is a potential way out, however. Social Security, which is the agency that handles Medicare premiums, will reconsider an adjustment if you’ve experienced certain “life changing events” that lead to an income decrease.

Divorce and annulment are among the life changes the agency will consider. Others include the death of a spouse, marriage, you or a spouse stopping work or reducing hours, the loss of a pension, involuntary loss of income-producing property due to a natural disaster, disease, fraud or other circumstances; or receipt of settlement payment from a current or former employer due to the employer’s closure or bankruptcy.

Social Security should have sent you a notice alerting you to the change in your premiums before it went into effect. That document included instructions about how to request a review. You also can call the agency’s toll free number at (800) 772-1213.

How to complain and get results

If you feel you have more to complain about these days, you may be right.

The products we use are increasingly complex, which often means they have more ways to malfunction. Companies are still struggling to hire and retain workers, so the customer service representatives who are supposed to help you may not know how. And that’s if you can even get through to a human being after navigating websites, automated chatbots and phone systems that seem designed to thwart you at every turn.

“You’re searching for where to call. Once you get through, you’re going to yell ‘agent!’ in the phone 12 times, and then they send you to the wrong place,” says Scott M. Broetzmann, chief executive of research firm Customer Care Measurement & Consulting in Alexandria, Virginia.

On average, customers made 2.9 contacts with a company while attempting to resolve problems, according to the firm’s 2020 National Customer Rage Study, which polled 1,026 consumers about problems with products or services in the past 12 months. A whopping 58% of respondents who complained got nothing — zero, zilch — as a result of their efforts. So perhaps it’s not surprising that 65% of those who had a problem experienced consumer rage. In my latest for the Associated Press, learn how to complain and get results.

This week’s money news

This week’s top story: Smart Money podcast on what we learned about our money in 2022. In other news: Holiday travel chaos is coming and how to handle it, why 2023 could be a bit better for home buyers, and benefit from fed rate hikes with a high-yield savings account.

Smart Money Podcast: What We Learned About Our Money in 2022
In this week’s episode, Sean and Liz hear from listeners about the best thing that happened to them this year, what they struggled with and what they are most looking forward to in the new year.

Holiday Travel Chaos is Coming: How to Handle It
From packing light to skipping the lines, here’s how to navigate the busiest holiday travel season in years.

For Home Buyers, 2022 Was Brutal. Why ’23 Could Be a Bit Better.
After enduring three difficult years from 2020 through 2022, home buyers might find a slightly more hospitable housing market in 2023.

Benefit From Fed Rate Hikes With a High-Yield Savings Account
The recent federal rate increases have been great for savers with high-yield savings accounts. It is not too late to take advantage.

Q&A: Social Security rules differ for divorced spouses and divorced survivors. We explain

Dear Liz: My spouse’s parents were married for 11 years. They divorced at age 32 and my mother-in-law remarried at 42. My mother-in-law and her ex are now 82. Her husband is 93 and in poor health. When her husband dies, she does not get his pension. Her current Social Security benefit is $850 a month. Her husband receives $1,200 while my father-in-law’s benefit is $2,500 a month. She is convinced that when her current husband dies, she will be eligible for her ex-husband’s $2,500 benefit. I think that only happens when her ex dies, but she can get 50% while he is still alive. What is correct?

Answer: You’ve got it right.

People may be eligible for benefits from ex-spouses’ work records if the marriage lasted at least 10 years.

While the ex is alive, your mother-in-law could qualify for divorced spousal benefits of up to 50% of his benefit at full retirement age — but only if she is currently unmarried. If her ex dies, she might be eligible for divorced survivor benefits of up to 100% of the benefit he was receiving — but only if she is widowed or divorced. (People can receive divorced survivor benefits while married, but only if they married at 60 or later.)

She would receive benefits based on her ex’s work record only if the check is larger than her own.

The different rules for divorced spousal versus divorced survivor benefits can be complicated, so it’s not surprising that she’s confused. Let’s use the numbers you provided to make this somewhat clearer.

If she is widowed and her ex is still alive, she would get a divorced survivor benefit of $1,250, because it’s (slightly) larger than the $1,200 survivor benefit from her husband’s record. (Her own $850 benefit would essentially go away, so her household income would drop pretty dramatically from $2,050 plus the pension to $1,250.)

If her ex should subsequently die, she would be eligible for divorced survivor benefits of $2,500 (or whatever the ex was receiving at the time of his death).

There are some caveats here.

Divorced spousal benefits are based on the ex’s “primary insurance amount,” or what he would receive at his full retirement age. For someone born in 1940, that was 65 years and six months. Your mother-in-law would not be eligible for any delayed retirement credits her ex may have earned by putting off his application until after his full retirement age.

On the other hand, she wouldn’t be penalized if he started his benefit before full retirement age. The bottom line is that her divorced spousal benefit could be somewhat more or less than 50% of what he is currently receiving, depending on when he applied.

Survivor and divorced survivor benefits, on the other hand, are based on what someone was actually getting when they died. An early start can stunt those benefits whereas a later start can increase them.

That’s true of regular survivor benefits as well, and why it is so important for the higher earner in a married couple to delay filing as long as possible. The larger benefit can really help when the first spouse dies and one of the couple’s two checks ends.

Your mother-in-law’s financial prospects were made even worse by the decision to get a “single life” payout from the pension rather than a “joint and survivor” option. The joint and survivor option would have meant accepting a smaller benefit, but it would have lasted for your mother-in-law’s lifetime rather than ending at her husband’s death.

A married worker can’t choose the single life option without spousal consent, and spouses would be smart to consult a fee-only financial planner before they agree to give up a lifetime stream of income.

Q&A: Authorized credit card users

Dear Liz: Following your advice on building credit, we recently added our son as an authorized user on one of my credit cards. My question is, what happens when I pass away? Does the card remain with him as the only user? Do I need to address this in my will?

Answer: Your executor, the person you named in your will to handle your estate, will be responsible for closing the account when you die. If there are any balances owing, the debt will be paid from your estate. There’s no need to make special provisions for the account in your will. By that time, your son, one would hope, would have cards of his own, so the closure shouldn’t affect his credit scores much if at all.

Sharing a roof, and money, with adult kids

When Amanda Claypool was 28, she left a government contracting job in Washington, D.C., and moved back to her parents’ house in upstate New York while she figured out her next step. Then the pandemic struck, and her temporary return lasted longer than she’d planned.

Living with her parents for several months “helped give me more flexibility to pivot to a new career,” says Claypool, who is now a content creator in Asheville, North Carolina. Her parents covered her expenses related to food and housing. In return, she helped them declutter and sell about $10,000 worth of vintage toys and collectibles online.

Claypool’s decision to return home is increasingly common. The Pew Research Center found that one quarter of U.S. adults ages 25 to 34 lived with parents or other relatives in 2021 and that the portion of young adults who do so has steadily climbed over the past 50 years.

Stefanie O’Connell Rodriguez, host of Real Simple’s “Money Confidential” podcast, has noted the trend. “Even prior to this latest round of inflation, we saw a greater share of millennials moving back in with parents and staying at home longer. The pandemic accelerated that,” she says.

While moving back home can provide a financial safety net for young adults, it can also negatively affect their parents’ finances and stymie their own growth toward becoming financially independent. In Kimberly Palmer’s latest for the Associated Press, learn how to navigate intergenerational living so it benefits everyone involved.

This week’s money news

This week’s top story: Smart Money podcast on rising interest rates, and budgeting with apps. In other news: How the Airbnb ‘gold rush’ could impact the homebuying market, avoiding 5 banking mistakes to earn more interest, pay less in fees, and co-buying a house.

Smart Money Podcast: Rising Interest Rates, and Budgeting With Apps
This week’s episode starts with a discussion about who is hurt the most by the Federal Reserve’s rate hikes.

How the Airbnb ‘Gold Rush’ Could Impact the Homebuying Market
A swoon in short-term rentals could result in a glut of properties in some areas, but make room for home buyers in others.

Avoid 5 Banking Mistakes to Earn More Interest, Pay Less in Fees
You might not know you’re making these common banking mistakes. Find out what they are and how to easily avoid them.

Co-Buying a House: How Platonic Partners Make It Work
Platonic partners are affording homes by combining their purchasing power. Here’s what to know if you’re considering this route.

Q&A: When to take survivor benefits

Dear Liz: My wife started collecting Social Security at her full retirement age six years ago. I’m waiting to file to get my maximum Social Security payout at 70 in 2025. If I were to file today, my current benefit would be significantly higher than hers, and even more so if I wait. If I predecease her without filing before reaching my maximum benefit at 70, what are her options for survivor benefits? Would her new benefit amount be based on my date of death or my full retirement age, or can she delay filing until I would have turned 70 in 2025?

Answer: Your wife would receive a survivor benefit equal to whatever you had earned as of your date of death, including any delayed retirement credits. She wouldn’t increase her survivor benefit by delaying until 2025, if you die before then. On the other hand, she also wouldn’t face a reduction in the benefit for starting early, since she has already reached her own full retirement age.

You’re making the smart move by delaying because you’re maximizing both your own benefit and the sole Social Security check that one of you will receive after the other dies. But you don’t have to be married to benefit from delaying. New research by economists at Boston University and the Federal Reserve has found that virtually all American workers ages 45 to 62 should wait beyond age 65 to start Social Security and more than 90% should wait until age 70.

Q&A: How to buy U.S. Treasuries

Dear Liz: Can I purchase a U.S. Treasury bill myself or do I need to go through a bank or a financial advisor?

Answer: You can buy government-issued securities — including Treasury bills, bonds and notes —from TreasuryDirect, which is operated by the U.S. Department of the Treasury. Setting up an account usually takes just a few minutes, but you’ll need a valid Social Security number, a U.S. address and a checking or savings account to complete the process.

You also can buy Treasuries in a brokerage account. You can purchase a Treasury bill on what’s known as the secondary market, where securities are bought and sold, or you can invest in a Treasury money market mutual fund or a Treasury exchange-traded fund.