What is IRMAA and how does income affect Medicare?
IRMAA is an extra charge on your Part B and Part D premiums when your income is above a set level. Social Security figures it from your tax return of two years ago.
- IRMAA is a surcharge, an extra amount added to your Part B and Part D premiums, if your income is above a set level.
- Social Security sets it using your tax return from two years earlier, so this year's premium is based on income you reported two filing seasons ago.
- If your income dropped because of a life change like retirement, you can ask Social Security to use your current income instead, with form SSA-44.
IRMAA stands for Income Related Monthly Adjustment Amount. It is a surcharge, an extra amount added to your Part B and Part D premiums, if your income is above a set level. A premium is the monthly bill for the coverage. Social Security decides whether you owe it, not Medicare.
Most people never run into it. The ones who do are usually surprised, because of how it is figured.
The two year lookback on your tax return
Social Security sets 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. These are the usual causes.
- Selling a house or a piece of land.
- A large Roth conversion (moving retirement savings into a Roth account, which counts as income that year).
- Cashing out a retirement account.
- Selling a business, or a large capital gain (the profit from selling something you own).
- An inheritance that created taxable income.
How the surcharge is applied to Part B and Part D
IRMAA comes in tiers, or brackets. Cross a bracket line by one dollar and you pay the full surcharge for that whole bracket. There is no gradual phase in. See how the Part B premium is set.
It applies to both Part B, the part that pays for doctor visits, and Part D, the drug coverage. The Part D piece surprises people because it is billed separately from your drug plan's premium. It shows up as its own charge.
The brackets are cliffs, so the timing of income near a bracket line matters. A few thousand dollars of timing can be worth more than a year of premium.
How to appeal IRMAA after a life change
Most people do not know they can appeal. 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.
These life changing events qualify.
- Retirement, or working fewer hours.
- Marriage, divorce or annulment.
- Death of a spouse.
- Losing property that produced income, through no fault of your own.
- Losing a pension, or having it reduced.
- A settlement payment from an employer.
Retirement is the big one. If you retired this year and the surcharge is based on your last 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, and then the surcharge falls off on its own.
What to do when an IRMAA notice arrives
- Read the letter and check which tax year it used.
- If your income has since dropped for a qualifying reason, file SSA-44 with proof right away instead of waiting.
- If you are close to retirement, talk to whoever does your taxes about the two year lag before you take a large withdrawal.
- Remember that the surcharge is not permanent. When your reported income falls, it comes off on its own the following year.
IRMAA also affects what you pay for Medicare overall. See the full cost picture. If you want to go through a notice you received, we can do that with you. Call our McAllen office at (956) 687 3334, or enter your ZIP code in the plan pricing box on this page.
Common follow-up questions
Is IRMAA permanent?
No. Social Security figures it again 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 no matter how you receive your coverage, so someone in an Advantage plan 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 normally resolves itself the following year.
Want this looked at properly?
We are an independent agency in McAllen serving Hidalgo, Cameron and Starr counties. There is no obligation to talk it through.
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Gerino Alejos
Licensed insurance agent · License 3128710 · NPN 18243381
Owner of McAllen Insurance Group, an independent agency on North 10th Street in McAllen. Works with clients across Hidalgo, Cameron and Starr counties on Medicare, Marketplace health, life and auto coverage. Se habla español.