Are you one of the Medicare beneficiaries who recently received a letter from the Social Security Administration? The letter that says “Initial IRMAA Determination?” If so, you might be wondering what this means.
In short, it’s a letter informing higher income earners that your Medicare monthly premium will go up because of your relatively high income.
This article will attempt to help you better understand:
What is IRMAA?
IRMAA stands for Income-Related Monthly Adjustment Amount, and it is an extra charge that applies to Medicare recipients with higher incomes. IRMAA applies to both Medicare Part B premiums and Medicare Part D premiums.
In layman’s terms, if your modified adjusted gross income (MAGI) is above certain income thresholds, you can expect to pay higher premiums for your Medicare coverage.
Unless you like paying higher Medicare premiums, IRMAA is something you would want to avoid, if possible.
How is IRMAA determined?
The Social Security Administration (SSA) uses information from your federal income tax returns to determine whether IRMAA applies to your financial situation. Since the SSA is a federal government entity, they simply get your tax information directly from the IRS.
To determine your IRMAA amounts, the SSA uses a number known as the modified adjusted gross income (MAGI).
What is MAGI?
MAGI consists of two items from your IRS tax return:
- Adjusted gross income (AGI). AGI is found on line 7 of your IRS Form 1040.
- Tax-exempt interest income. This is found on line 2a of your Form 1040. Tax-exempt interest usually comes from state or local municipal bonds.
Once MAGI is calculated from these two numbers, they are compared to the IRMAA income threshold numbers. These IRMAA calculations help determine:
- Whether the taxpayer is subject to IRMAA
- Which IRMAA tier that taxpayer is in
That begs the question-what is an IRMAA threshold? But first, we must understand when IRMAA is applied?
When is IRMAA applied?
When you receive the IRMAA determination letter, that determination was made using information from a previous tax year. Normally, IRMAA determination letters are generated for the upcoming calendar year.
For example, most people who exceeded their IRMAA threshold in tax year 2020 would have received their letters in November 2021. And the IRMAA would apply for calendar year 2022. To recap:
- Exceed IRMAA threshold in Year One.
- Receive (usually) IRMAA determination letter in Year Two.
- IRMAA applies (usually) in Year Three.
Let’s discuss what IRMAA thresholds are.
What is the IRMAA threshold?
If the combined total of those two figures exceeds a certain dollar amount then IRMAA may apply to you. These are known as IRMAA brackets, or IRMAA thresholds.
For calendar year 2022, the IRMAA thresholds are calculated using MAGI information from the 2020 tax year. If your 2020 income was above the following, IRMAA might apply:
|Taxpayer filing status||MAGI|
|Married couple filing separately||$91,000|
|Married couple filing jointly||$182,000|
IRMAA thresholds for 2020 Modified Adjusted Gross Income
If your MAGI is below these numbers, then you are not responsible for IRMAA. And if your future income is expected to remain below these numbers, it’s feasible that you may never pay this monthly surcharge.
But if your income is above this threshold, then you probably will be responsible to pay Medicare IRMAA surcharges. To know how much, you need to understand which IRMAA tier you fall into.
What are IRMAA tiers?
For taxpayers who fall into one of the higher income brackets, there are 5 IRMAA tiers, based on your income levels. So high-income earners pay higher Medicare costs than lower income taxpayers who barely earn more than the IRMAA threshold.
Your determination letter should have a breakdown of your Part B and Part D IRMAA surcharges. These surcharges are adjusted each year for inflation.
IRMAA Tiers for Medicare Part B
Below are the IRMAA costs for Part B Medicare premiums. The monthly cost includes the standard premium plus any Part B IRMAA surcharges.
|Single taxpayer MAGI||MAGI for married couple filing jointly||MAGI for married couple filing separately||Total Medicare premium (Part B)|
|up to $91,000||up to $182,000||up to $91,000||$170.10 (standard Part B premium)|
|$91,001 to $114,000||$182,001 to $228,000||N/A||$238.10|
|$114,001 to $142,000||$228,001 to $284,000||N/A||$340.20|
|$142,001 to $170,000||$284,001 to $340,000||N/A||$442.30|
|$170,001 to $499,999||$340,001 to $749,999||$91,000 to $408,999||$544.30|
|$500,000 or more||$750,000 or more||$409,000 or more||$578.30|
2022 Medicare Part B premiums based on 2020 adjusted gross income
IRMAA Tiers for Medicare Part D
Medicare Part D plans also have IRMAA surcharges. Below, the IRMAA tiers are outlined as a surcharge on top of the standard plan premium amount for your Medicare Part D.
|Single taxpayer MAGI||MAGI for married couple filing jointly||MAGI for married couple filing separately||Total Medicare premium (Part D coverage)|
|up to $91,000||up to $182,000||up to $91,000||Standard Part D premium|
|$91,001 to $114,000||$182,001 to $228,000||N/A||Standard Part D premium + $12.40|
|$114,001 to $142,000||$228,001 to $284,000||N/A||Standard Part D premium + $32.10|
|$142,001 to $170,000||$284,001 to $340,000||N/A||Standard Part D premium + $51.70|
|$170,001 to $499,999||$340,001 to $749,999||$91,000 to $408,999||Standard Part D premium + $71.30|
|$500,000 or more||$750,000 or more||$409,000 or more||Standard Part D premium + $77.90|
2022 Medicare Part D surcharges based on 2020 adjusted gross income
What can I do about IRMAA?
For many people, there might not be a whole lot you can do to avoid the surcharge in the current year. After all, if you had significant adjusted gross income two years ago, there’s not a lot that you can do to change it now.
However, there are two major considerations:
If you experienced a significant increase in taxable income or tax liability due to a one-time event, you might have some options.
The SSA recognizes several events, known as life changing events, that might allow relief for a taxpayer. Under certain conditions, a taxpayer may be able to have the SSA evaluate their adjusted gross income based on this updated information.
Then, if the new information justifies a reduced IRMAA or eliminating the surcharge completely, then the SSA will make the required adjustments. This is technically known as a new initial determination.
However, the SSA only recognizes certain qualifying life-changing events. Those events include:
- Death of a spouse
- Divorce or annulment
- Work reduction
- Work stoppage
- Involuntary loss of income-producing property
- Loss of employer pension, or
- Receipt of a settlement payer from current or former employer
If you meet one or more of those criteria, then you can complete Form SSA-44 (Medicare Life Changing Event) and submit it to your local Social Security office for review.
We’ve written a more comprehensive step-by-step guide to the SSA-44, which you can also read. Below, we’ve summarized the steps you can expect to see in the SSA-44.
Step 1: Type of Life-Changing Event
Here, you list which event impacted your income, and on what date that event occurred.
Step 2: Reduction in Income
You fill out the tax year information for the year in which the event occurred. This is simply the information that was already in your tax return in Line 2a and Line 7.
Step 3: Modified Adjusted Gross Income
This is a best estimate of what your income will look like in the future. If you’re working with a tax professional, it might be worth having that person run a tax projection for you.
If not, you might need to make some adjustments. REMEMBER: If you don’t think your income will go down as a result of this event, this will not work.
Step 4: Documentation
Submit original or certified copies of the documents proving the life-changing event. This could be a marriage certificate, death certificate, or any document that proves that the event happened.
TIP: If possible, get an extra copy, or have your document notarized. While the Social Security Administration will send originals back to you, you might need that document for another matter.
Do not give the Social Security Administration your only copy of an important document.
Step 5: Signature
You’re signing under penalty of perjury, so do not do this unless you know this to be true.
If you do not qualify for a reduction of IRMAA based on a life-changing event, then perhaps you can avoid IRMAA in the future with tax planning.
Tax planning opportunities
If there are no life-changing events that would qualify you for IRMAA relief, don’t despair! Perhaps there are some tax planning opportunities that might help you avoid IRMAA in future years.
While this topic is beyond the scope of this article, we’ve written more in depth tax planning articles that might help. Especially if your income is close to one of the IRMAA thresholds.
Below is a partial list of things to consider:
- How to make your charitable contributions more tax efficient
- Planning your IRA distributions to lower your future taxable income
- Developing a long-term plan to sell appreciated stocks and harvest capital gains over time
- Gifting to relatives in a more tax-efficient manner
- Implementing a Roth conversion strategy to avoid required minimum distributions from your retirement plan in the future
- Evaluate your tax filing status if you’re married. Married couples filing a joint tax return might fall into a different IRMAA surcharge bracket from married couples filing separately.
Perhaps you can’t completely avoid IRMAA. But you might get into a lower bracket by discussing one or more tax planning opportunities with your financial advisor.
IRMAA can be a pretty big surprise for Medicare members. In fact, IRMAA is a big surprise when you first receive the determination letter. The most important thing you can do is to know all the facts about your situation. From there, you can decide if you might be able to do something about it.
If so, you should start by talking to the Social Security Administration. They can walk through your particular situation with you.
You can also talk with your financial advisor or tax professional, either about IRMAA or tax planning opportunities to avoid IRMAA in the future. As a former advisor, I used to routinely do this for clients, and your advisor should as well.