Form SSA 131.
I retired in 2019 at age of 70 1/2 and was paid the unused vacation hours. I have been receiving social security and filed for Medicare B. Since the B premium is based on the level of income, I planned on asking Social Security to adjust the unused vacation pay in 2021.
I asked the employer to provide me letter of this extra income. They sent me form SSA 131. Should I file it with SSA? Would it affect my SSA pay?
The Social Security employee who sent you form SSA-131 either made a mistake or doesn't know what they're doing. Form SSA-131 (https://www.ssa.gov/forms/ssa-131.pdf) is used to identify special types of salary payments that could be excludable when determining a person's yearly earnings for purposes of the Social Security earnings test. The earnings test no longer applies once you reach full retirement age (FRA), so you're well past the age when a form SSA-131 would be needed.
Medicare premium rates are set based on a sliding scale determined by your annual modified adjusted gross income (MAGI) level (https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-...). The MAGI level used to determine your premium rate is typically based on your tax return for the year 2 years prior to the year that the premium rate applies. So, for example, your 2020 premium rate would normally be based on your MAGI for the 2018 tax year. And, since MAGIs are based on the income that a person received in a taxable year, regardless of when the income may have been earned, the information requested on form SSA-131 is meaningless with regard to Medicare premium rates.
However, there is a provision that allows Social Security to use a different more recent tax year on which to base a person's Medicare premium rate, but only if a specified 'life changing event' (LCE) is involved. LCEs are defined as any of the following circumstances (https://secure.ssa.gov/apps10/poms.nsf/lnx/0601120005#c):
1. Death of spouse;
3. Divorce or annulment;
4. Work reduction;
5. Work stoppage;
6. Loss of income-producing property;
7. Loss of employer pension; or
8. Receipt of settlement payment from a current or former employer.
If you believe that your Medicare premiums would be lower if Social Security used a more recent tax year on which to base your premiums, then the correct form to use would be an SSA-44 (https://www.ssa.gov/forms/ssa-44-ext.pdf). However, I can't tell you whether or not doing so would help, hurt, or have no effect in your case.