Who is IRMAA and Why is She Taking My Money?

By Aimee Calderon, CFP®

 

While IRMAA sounds like the name of your long-lost aunt, it actually stands for Income Related Medicare Adjustment Amount and is essentially a Medicare surcharge or tax.  Social Security uses your tax return to determine how much you should pay for Part B and Part D of Medicare.  Your MAGI (Modified Adjusted Gross Income) is the figure that determines how much you pay for part B and part D of Medicare. MAGI is equal to your AGI plus tax-exempt interest or foreign earned income. IRMAA calculations have a 2-year lag time so your 2024 rates are dependent on your 2022 tax return.

If your 2022 MAGI as a single person is under $103,000 or $206,000 as a married person, you will pay the baseline amount of $174.70/mo for Part B coverage and $55.50/mo for Part D coverage in 2024.  If your MAGI is more than these amounts, then you will pay an additional surcharge for these coverages due to IRMAA. 

Here are the monthly income brackets and surcharges for 2024 based on 2022 MAGI:


It is important to note that unlike income tax brackets that are marginal, IRMAA uses a “cliff” style assessment. If you are $1 over the cut off for the next tier, you will pay the higher monthly amount.  If you are married and your 2022 MAGI was $260,000, you and your spouse will EACH pay $349.40 per month for Part B and $88.80 per month for Part D.

If you do get pushed into IRMAA, there are some circumstances under which you can appeal the surcharge. You must have a life changing event to qualify for an appeal. Following are Social Security’s approved life changing events:

  •          Marriage

  •         Divorce/Annulment

  •         Death of your Spouse

  •          Work Stoppage

  •          Work Reduction

  •          Loss of Income-Producing Property

  •          Employer Settlement Payment

Determination letters from Social Security indicating that you are getting pushed into IRMAA are typically mailed out at the end of the calendar year.  If you receive a letter, it is important to consult your financial advisor or accountant to see if you are eligible for an appeal.

To appeal the surcharge, you must complete a Medicare IRMAA Life Changing Event Form SSA-44.  You will need to provide documentation of your life-changing event and your decrease in income. You can estimate your current year’s income for the appeal but you must eventually submit a tax return to prove the decrease.

The IRMAA surcharges are steep and can be a real surprise for many taxpayers.  It is important to be aware of them, so you don’t inadvertently get pushed off an IRMAA “cliff”.  Required minimum distributions and unexpected capital gain distributions can sometimes be the culprits. Tax planning for the current year and future years becomes even more essential when trying to avoid IRMAA. 


Schedule a 15-minute discovery call with a fee-only financial advisor if you want help thinking through some of these issues.

Aimee Calderon, CFP®