The Income-Related Monthly Adjustment Amount (IRMAA) is an additional premium surcharge that higher-income Medicare beneficiaries must pay on top of their standard Medicare Part B (medical insurance) and Part D (prescription drug coverage) premiums. Unlike the base Medicare premiums that everyone pays, IRMAA is specifically designed to require wealthier retirees to contribute more toward their healthcare costs.
IRMAA is determined by the Social Security Administration using income data provided by the Internal Revenue Service. Significantly, the determination is based on your tax return from two years prior, so your 2025 IRMAA charges will be calculated using your 2023 tax return information.
How IRMAA Is Calculated and Applied
The Social Security Administration determines IRMAA amounts using a tiered bracket system with distinct income "cliffs." Once your Modified Adjusted Gross Income (MAGI) crosses a threshold, even by $1, you're subject to the full surcharge amount for that entire bracket—there is no gradual increase.
For married couples filing jointly, the assessment is based on combined income, which can create significant premium increases when both spouses are on Medicare. The SSA sends notification letters before implementing surcharges, typically in the last quarter of the year for the following year's premiums.
IRMAA is added directly to your Medicare premium bills, whether you pay them through Social Security deductions, direct billing, or Medicare Easy Pay. The surcharge amounts are substantial—potentially increasing premiums by 40% to over 240% above the standard rates depending on your income level.
Some Examples Of Income Sources That Trigger IRMAA
Income:
- Taxable Social Security
- Alimony (finalized before January 1st, 2019)
- Taxable wages
- Royalty income
- Unemployment compensation
- Self-employment income
Investment Income
- Dividends from stocks
- Capital gains from investment sales
- Interest from bonds and CDs
- Tax-exempt municipal bond interest (included in MAGI)
Retirement Distributions
- Traditional IRA withdrawals
- Required Minimum Distributions (RMDs)
- 401(k) and pension distributions
- Roth IRA conversions (in conversion year)
One-Time Events
- Home or property sales
- Business sales or liquidations
- Inheritances with taxable components
- Lottery or gambling winnings
Even seemingly unrelated financial decisions can have unexpected IRMAA implications. For example, selling a long-held investment property could create a capital gain that pushes your income into a higher IRMAA bracket for two years, potentially costing thousands in additional Medicare premiums.
Strategic Planning to Manage IRMAA Exposure
With careful planning, you can potentially reduce or avoid IRMAA surcharges. The key is managing your Modified Adjusted Gross Income (MAGI) strategically across tax years, especially during the transition to retirement and in early retirement years.
Some Planning Examples:
Spread large income events across multiple tax years when possible to avoid concentration in a single year
Complete Roth IRA conversions before Medicare enrollment to avoid IRMAA impacts during retirement
Use Qualified Charitable Distributions from IRAs after age 70½ to satisfy charitable goals without increasing MAGI
Coordinate withdrawals from various accounts to maintain income below the IRMAA thresholds
IRMAA Appeals and Life-Changing Events
The Social Security Administration recognizes that the two-year lookback period may not accurately reflect your current financial situation. If you've experienced certain life-changing events that have reduced your income, you can request an IRMAA reduction by filing Form SSA-44.
Qualifying life-changing events include:
- Marriage, divorce, or the death of a spouse
- Work stoppage or reduction
- Loss of income-producing property due to disaster
- Loss of pension income
- Employer settlement payment due to bankruptcy
When filing an appeal, you must provide documentation supporting both the life-changing event and your current income. The SSA typically responds within 30-60 days. Even without a qualifying event, you can request a new determination if you believe the information used to calculate your IRMAA is incorrect or outdated.
Proactively monitoring your income and understanding IRMAA thresholds allows you to anticipate potential premium increases and take action before they impact your budget.
To learn more about IRMAA, you can contact our office to schedule a time to discuss this, or call your CPA who may be able to assist you.