What is IRMAA and Which Medicare Costs are Based on Income?

Medicare beneficiaries who earn a high income may pay an extra surcharge for Medicare Part B and Medicare Part D premiums. The government calls this additional charge the Income-Related Monthly Adjusted Amount, often shortened to IRMAA.

What is IRMAA?

The IRMAA for Medicare Part B started in 2007, and the IRMAA for Part D began in 2011. They both represent surcharges that may increase Medicare premiums for all beneficiaries with incomes over the specified threshold. The government recalculates income each year, so premiums may vary from year to year along with income. The government says that this additional tax on Medicare beneficiaries with higher incomes will help ensure the financial stability of the Medicare program.

In some IRMAA brackets, the surtax can be quite high. As with other taxes, anyone with incomes that may meet or exceed the threshold can manage their finances to reduce their potential burden. It’s the responsibility of each beneficiary to ensure the government determines their income and surtax correctly, and the beneficiaries do have the right to request redeterminations and make appeals.

How Do Beneficiaries Pay the IRMAA Surtax?

The government automatically deducts most enrollees Medicare Part B premium from their Social Security check, and it will also deduct any additional surtaxes. Those who don’t receive this retirement income will get a bill, and the government offers multiple ways to pay.

Similarly, Medicare explains that beneficiaries can have Medicare Part D premiums automatically deducted from Social Security, but they can also opt to pay the insurer directly. Either way, the surtax paid goes straight to Medicare and not to the private insurance company.

Who Pays IRMAA?

IRMAA brackets begin with Medicare Part B and Part D enrollees who have an annual income over $91,000. According to Medicare, these beneficiaries will get an IRMAA notice in the mail from Social Security. The notice provides information about the IRMAA determination and the beneficiary’s right to appeal.

Social Security uses income from income taxes filed two years previously. For instance, the government would determine Medicare premiums for 2023 on 2021 tax returns. Beneficiaries can use the appeals process if their financial situation changes.

How Does Social Security Determine IRMAA Income?

Social Security bases this determination upon its Medicare-specific Modified Adjusted Gross Income (MAGI). This figure may differ from the MAGI used for other purposes. The government has a specific definition of AGI but not MAGI.

This Congressional Research Service table demonstrates the Medicare Part B and D IRMAA MAGI determination and compares it to the MAGI determination for other healthcare programs. For instance, the government adds the non-taxable portion of Social Security for ACA premium tax credits but not for Medicare. In contrast, the Medicare MAGI adds income from U.S. territories, but the ACA MAGI excludes it.

How Can Medicare Beneficiaries Appeal the IRMAA Determination?

The government recognizes that a beneficiary’s financial situation can change, or sometimes, they may make errors in calculating the MAGI. Thus, Social Security offers a process for beneficiaries to appeal the Medicare MAGI determination.

File for a Redetermination

Beneficiaries have two ways to file a redetermination:

• File Form SSA-44 to let Social Security know about life-changing events that impacted income. Some examples of these events could include cutting back on or stopping work, getting married or divorced, and a spouse’s death.
• Beneficiaries also can call Social Security to schedule an interview with a representative. To get started, dial 1-800-772-1213. TTY users may call 1-800-325-0778.

File an Appeal

If Medicare beneficiaries disagree with the redetermination, they have the option to request a formal appeal. The recipient should receive a reconsideration letter with complete details about this process. Otherwise, CMS posted details about the formal appeal process. Recipients of the reconsideration letter have 60 days after receipt to start an appeal.

Ways to Manage IRMAA Income

High-income beneficiaries may pay a substantial surtax on Medicare Part B and D premiums. Financial planning should always account for taxes, so Medicare beneficiaries should consider Medicare surtaxes as part of sound financial management.

Taxpayers can benefit from consulting a tax or financial professional to find opportunities to manage retirement finances in legal ways to reduce their tax burdens.

How the Secure Act Can Impact IRMAA

High-income earners should consider a couple of features of 2019’s Secure Act. In particular:

• This legislation lets retirees contribute to some tax-advantaged retirement plans after 70 1/2 with earned income.
• Also, the age of RMDs has increased from 70 1/2 to 72 for those who reach 70 1/2 after 2019.

Thus, making deductible contributions and delaying distributions can help reduce the income used to calculate the IRMAA.

How Investment Income Can Impact IRMAA

Some potential ways to reduce income used for the IRMAA determination could include:

• Medicare Savings Accounts (MSAs): These work similarly to HSAs because they allow Medicare beneficiaries to make tax-deductible contributions to pay for out-of-pocket healthcare expenses. Since the government considers these a kind of Part C plan, Medicare seeds the account with money that’s tax free so long as it’s used for qualified expenses.
• Tax-free income streams: Some may benefit from such tax-free income streams as a reverse mortgage or tax-qualified longevity annuity. The IRS allows taxpayers to purchase the annuity, and that action can reduce RMDs.
• Avoiding realized capital gains: Stock or real estate sales may generate taxable capital gains. Taxpayers may delay these gains or try to offset them with realized capital losses.
• Charitable contributions: It is common for those who can’t avoid RMDs or capital gains to reduce their tax burden by contributing to charitable organizations.

What is the Part B IRMAA Amount for Various Incomes?

Medicare established a standard premium in 2022 of $170.10 for single or separate filers with incomes equal to or under $91,000. Married, joint filers also pay the standard premium with incomes equal to or under $182,000.

The following table shows the Medicare Part B IRMAA brackets for 2022:

What is the Part D IRMAA Amount for Various Incomes?

Unlike Medicare Part B, Medicare Part D doesn’t have a standard premium. Instead, premiums can vary because of the plan or geographic area. Like Part B, the IRMAA begins for single or separate filers with incomes over $91,000 and for couples who are married and filing jointly with incomes over $182,000. Medicare beneficiaries who earn less than these amounts will pay the Part D plan’s regular premium.

This chart shows Medicare Part D IRMAA brackets for 2022.

Sources:

1. Initial IRMAA Determination, Medicare.
2. The Third Level of Appeal, CMS.
3. Medicare Part B Costs, Medicare.
4. Monthly Premiums for Drug Plans, Medicare.