Understanding IRMAA: What It Is and Its Impact on Medicare Premiums
Medicare’s income-related monthly adjustment amount, commonly referred to as IRMAA, is an additional premium that applies to higher income individuals enrolled in Medicare. The purpose of IRMAA is to have higher-income beneficiaries pay more toward their healthcare coverage than lower-income beneficiaries.
This article explains what it is, when it applies, and what you can do about it.
What is IRMAA?
IRMAA is an additional premium charge added to your Medicare Part B and Part D premiums when your income exceeds certain thresholds.
When Are You Subject to IRMAA?
The Social Security Administration (SSA) uses a Modified Adjusted Gross Income (MAGI) to determine whether you need to pay IRMAA and at what level.
Here’s how MAGI is calculated:
- Adjusted Gross Income (AGI): This is your total taxable income, which includes wages, salaries, capital gains, rental income, and other taxable income streams. You can find it directly on your IRS Form 1040.
- Additions to AGI for MAGI Purposes: Add back any tax-exempt income that is typically excluded from AGI. This primarily refers to interest earned from municipal bonds.
The SSA receives your MAGI information directly from the IRS, and no additional reporting is needed on your part.
The income thresholds that trigger IRMAA are adjusted annually for inflation, but generally, the surcharge applies if your MAGI exceeds $97,000 (for individual filers) or $194,000 (for married couples filing jointly) in 2024.
There are five income tiers for IRMAA, and the surcharge increases progressively. Medicare Part B IRMAA surcharges range from an extra ~$66 per month up to $520 per month more while Medicare Part D surcharges are $~$13 to 77 per month. For a couple, it applies to both so double those amounts.
For the most current thresholds, see Latest Tax Resources – Gilbert Wealth
When Does IRMAA Apply?
If your income surpasses the IRMAA thresholds, you will be notified by the SSA through a determination letter that explains your IRMAA amount for both Medicare Part B and Part D. The amount of the surcharge is tiered based on your income, so the higher your income, the larger the additional premium you will pay.
IRMAA adjustments kick in automatically if your income breaches the threshold set by the IRS for your filing status, but the adjustments won’t happen until two years later. The reason for the delay is so the SSA can review your final filed tax return to calculate your IRMAA.
For example, if your 2022 income exceeds the IRMAA threshold, you will see higher Medicare premiums in 2024.
IRMAA does not apply retroactively to past years; it only impacts your future Medicare premiums once the determination is made based on past income.
If your income subsequently drops below the IRMAA threshold, the surcharge will no longer apply once the SSA adjusts your premium accordingly.
Planning for IRMAA
You need to begin considering IRMAA and its effect beginning at age 63 due to the 2-year lookback. In particular, IRMAA is a major consideration in the following cases:
- You are performing Roth Conversions
- You are single (due to lower thresholds)
- You have a substantial of your retirement savings in Pre-Tax (401k, Traditional IRA, etc) retirement accounts subject to future Required Minimum Distributions