As we near retirement, we may assume that once Medicare kicks in, our medical insurance premiums will be fixed. However, many people may not realize that there are special rules regarding how much they pay for Medicare Parts B and D if they are in a higher income range.
What Is IRMAA?
If the Social Security Administration (SSA) determines you have a higher income, you will have to pay more for your Medicare Part B or Medicare Part D coverage. This surcharge is referred to as the income-related monthly adjustment amount (IRMAA). It is paid in addition to your monthly premium amount.
Note that Medicare Part B pays for doctor visits, outpatient care, and related services. Medicare Part D is related to your prescription drug coverage.
How Is IRMAA Calculated?
To determine whether you must pay higher Medicare Part B or D premiums, the SSA bases the decision on your most recently filed tax return. Because of timing issues, this can often be your tax return from two years prior, as your most recent one may not yet be filed or in the IRS system.
If the SSA finds that you must pay a higher premium, they use a sliding scale based on your modified adjusted gross income (MAGI) to determine by how much. MAGI equals your total adjusted gross income and any tax-exempt interest income you have received in a tax year.
2023 IRMAA Brackets
The IRMAA 2023 threshold for married couples is $194,000. For any other filing status, the threshold is $97,000.
Once you cross these thresholds, you will pay more for coverage. How much more depends on how much you exceed these numbers. The SSA provides a chart to show you what you can expect in 2023.
The SSA calculates your IRMAA every year. So, while you may be subject to IRMAA for one year, you may not be subject to it the following year. If the SSA determines you will be subject to IRMAA, they inform you of this and its effect on your premium in writing.
How Will IRMAA Affect My Premiums?
Let's start by understanding how IRMAA may affect your Medicare Part B and D premium. Usually, the split between SSA and you is 75 percent/25 percent. In other words, Medicare pays 75 percent of the premium, and you pay 25 percent. If you exceed the income thresholds, the split changes, and you may pay anywhere from 35 percent to the total cost, depending on your income level.
Again, refer to the SSA's 2023 chart for your situation. So, for example, if you are filing taxes as a married couple and make between $194,000 and $228,000 in 2023, you will see on the 2023 chart that your Part B premium will increase by $65.90. Your Part D premium will go up by $12.20.
What If I Don't Think I Should Be Subject to IRMAA?
What happens if your income listed on your most recently available tax return was much higher than what you are currently making or receiving? There is a way for you to inform SSA of the change in your finances.
For example, if you divorced, were laid off, or are making less money and you can document this, you can complete the Medicare Income-Related Monthly Adjustment Amount - Life-Changing Event form. This will inform SSA and ask them to reassess any imposition of IRMAA in your case.
You can also appeal the SSA's decision where there was a change in your income but not necessarily in the form of a life event. For example, if you filed and IRS accepted an amended tax return for the year that is being used to calculate your IRMAA, you may be able to get the SSA to change its decision. Sometimes the SSA gets erroneous information about you from the IRS, and this may also be a basis to appeal.
There are a few different ways to appeal the SSA's IRMAA determination. The appeal can be submitted in any of the following ways:
Speak With a Professional
If you have questions about IRMAA and your particular circumstances, it is best to speak with a professional. Timing matters, so seeking professional guidance as soon as possible after you receive notice of the IRMAA surcharge is essential.