What is IRMAA and will I pay more for Medicare based on my income?
A surcharge on Part B and Part D for higher earners, calculated from a tax return two years old. Here is how to see it coming and how to appeal it.
IRMAA stands for Income Related Monthly Adjustment Amount. It is a surcharge added to your Part B and Part D premiums if your income is above a set threshold.
Most people never encounter it. The ones who do are usually surprised, because of how it is calculated.
The two year lookback
Social Security determines IRMAA using your tax return from two years earlier. Your premium for this year is based on income you reported two filing seasons ago.
That gap is the whole problem. A one time event two years back can raise your premium today, long after the money is gone.
- Selling a house or a piece of land
- A large Roth conversion
- Cashing out a retirement account
- A business sale or a large capital gain
- An inheritance that generated taxable income
How it is applied
IRMAA is tiered. Cross a threshold by one dollar and you pay the full surcharge for that entire bracket. There is no gradual phase in.
It hits both Part B and Part D. The Part D piece surprises people, because it is billed separately from your drug plan premium and shows up as its own charge.
Because the brackets are cliffs rather than slopes, income planning around the edges genuinely matters. A few thousand dollars of income timing can be worth more than a year of premium.
Appealing it, which most people do not know they can do
If your income dropped because of a life changing event, you can ask Social Security to use your current income instead of the two year old return. The form is SSA-44.
Qualifying life changing events include:
- Retirement or reduced work hours
- Marriage, divorce or annulment
- Death of a spouse
- Loss of income producing property through no fault of your own
- Loss or reduction of a pension
- Employer settlement payments
Retirement is the big one. If you retired this year and the surcharge is based on your final high earning year, file SSA-44 with proof and it can be removed.
Selling a house is not a life changing event under these rules. Neither is a one time capital gain. Those you generally have to ride out for the year, after which the surcharge falls off on its own.
What to actually do
- When the determination letter arrives, read it and check which tax year it used.
- If your income has since dropped for a qualifying reason, file SSA-44 with documentation right away rather than waiting.
- If you are approaching retirement, talk to whoever prepares your taxes about the two year lag before you take a large distribution.
- Remember the surcharge is not permanent. When your reported income falls, it comes off automatically the following year.
IRMAA also interacts with what you pay overall. See the full cost picture.
Common follow-up questions
Is IRMAA permanent?
No. It is recalculated every year from a new tax return. When your income drops, the surcharge comes off the following year without you doing anything.
Does IRMAA apply to Medicare Advantage plans?
Yes. It is charged on Part B and Part D regardless of how you receive your coverage, so an Advantage enrollee pays it too.
I sold my house and got hit. Can I appeal?
Usually not. A property sale is not on the list of qualifying life changing events. It typically resolves itself the following year.
Want this looked at properly?
We are an independent agency in McAllen serving Hidalgo, Cameron and Starr counties. No cost to talk it through.
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