What is IRMAA (Income Related Monthly Adjustment Amount)?
Did you receive an updated Social Security Administration benefits statement and notice extra monthly premium amounts for your Medicare Part B & D coverages? If so, you’re not alone, as 7% of Medicare beneficiaries end up with these additional fees on their Medicare premiums: Medicare IRMAA surcharges.
In 2003, the government introduced Medicare IRMAA. IRMAA stands for “Income-Related Monthly Adjusted Amount.” It’s an acronym for calculating whether Medicare beneficiaries get to pay the standard Medicare rates or if you’ll have to pay an extra “surcharge” on your monthly premiums. It’s important to note that surcharges could apply to those with Traditional Medicare and Medicare Advantage plans.
How is IRMAA calculated?
Medicare IRMAA is calculated based on your Modified Adjusted Gross Income reported to the IRS two years prior, which means that your 2023 Medicare premiums are based on your 2021 tax returns.
And what exactly is Modified Adjusted Gross Income (MAGI)? MAGI is calculated by taking your Adjusted Gross Income (AGI) and adding back tax-exempt interest. So MAGI is your total income before any deductions (except for “above the line” deductions).
As IRMAA is calculated using MAGI, proactive financial and tax planning is critical to plan and potentially reduce future surcharges on your monthly premiums.
What are the income brackets for IRMAA Surcharges?
On September 27, 2022, The Centers for Medicare & Medicaid Services (CMS) released the premiums, deductibles, and coinsurance rates for the Part A and B programs, as well as the Medicare Part D income-related monthly adjustment amounts (IRMAA) for 2023 Medicare premiums.
2023 Medicare IRMAA Brackets
- Individual $97,000 or less/MFJ $194,000 or less – No surcharge
- Individual $123,000 or less/MFJ $234,000 or less – Medicare Part B $230.80 plus $12.20 for Medicare Part D
- Individual $153,000 or less/MFJ $306,000 or less – Medicare Part B $329.70 plus $31.50 for Medicare Part D
- Individual $183,000 or less/MFJ $366,000 or less – Medicare Part B $428.60 plus $50.70 for Medicare Part D
- Individual $500,000 or less/MFJ $750,000 or less – Medicare Part B $527.50 plus $70.00 for Medicare Part D
- Individuals greater than $500,000/MFJ greater than $750,000 – Medicare Part B $560.50 plus $76.40 for Medicare Part D
As you can see in the table above, in 2023, the surcharge kicks in for singles with a Modified Adjusted Gross Income (MAGI) of more than $97,000 and couples with an income of more than $194,000. The surcharge continues to increase at higher MAGI levels.
It’s important to note IRMAA is also known as a “cliff tax.” With a cliff tax, you must pay the added surcharge premiums if your MAGI is just $1 over the thresholds.
For example, the first MAGI threshold for a single tax filer in 2023 is $97,000. Suppose a single tax filer’s 2021 MAGI was just $1 over the threshold ($97,001). In that case, Medicare adds the full additional $65.90 a month to the $164.90 base Part B premium and $12.20 a month to your Medicare Part D premium.
Can I appeal the IRMAA determination?
If you are required to pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge as part of your Part B premium (medical insurance) or Part D (prescription drug coverage) premium, you may be able to appeal the surcharge if your income or financial situation has changed through a “qualifying event.”
In what situations can I appeal?
A “qualifying event” is a change in circumstances that may affect the beneficiary’s income or tax filing status and may qualify the beneficiary for a reduction or elimination of the IRMAA surcharge. Some examples of qualifying events include:
- Marriage, divorce, or death of a spouse
- Loss of income-producing property
- Retirement
- Change in employment status
- Loss of pension income
- Change in tax filing status
It’s important to note that the list is not exhaustive, and a beneficiary may appeal an IRMAA surcharge based on other changes in circumstances that may affect their income.
IRMAA Appeal Form and How to Appeal in 2023
To appeal the IRMAA surcharge, you must complete the Medicare IRMAA Life Changing Event Form. The medicare irmaa life-changing event form (FORM SSA-44) includes complete instructions to file an appeal, the documentation needed, and where to send your appeal form.
In addition, you may contact the Social Security Administration at 1-800-772-1213 (TTY: 1-800-325-0778). You will need to provide documentation to support your appeals, such as tax returns, wage, and earnings statements, or other financial documents.
How Do I Avoid Medicare IRMAA?
Fortunately, through proactive tax planning, it’s possible to predict whether you will likely be caught in the IRMAA trap. You may even be able to take action to reduce future surcharges!
Your current Financial Advisor should proactively work with you to project your short and long-term taxes. And together, you should develop strategies to reduce your future taxes and possible surcharges. If your Financial Advisor cannot do this, please schedule a 15-minute introductory call with us!
Remember, IRMAA is calculated on Modified Adjust Gross Income, not taxable income. Therefore, you must reduce or shift income, if possible. If you own mutual funds in taxable accounts that tend to distribute high year-end capital gains, consider moving into tax-efficient investments.
In addition, consider donating to charity through Qualified Charitable Distribution for those subject to Required Minimum Distributions.
Maximize Your Savings with Tax Planning and Projections
Don’t miss out on the opportunity to keep more of your hard-earned money!
RCS Financial Planning specializes in tax planning and projections for our retired clients, which are key in creating a strategy to lower your taxes and Medicare premium surcharges. Schedule your introductory call with us today and let us show you how we can help you save on your costs.
