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What is the income-related monthly adjusted amount (IRMAA) and how do I avoid it? Thumbnail

What is the income-related monthly adjusted amount (IRMAA) and how do I avoid it?

For high-income Medicare beneficiaries, Part B and Part D premiums will include an additional charge based on your modified adjusted gross income.

Key takeaways

  • For 2022, beneficiaries who earn over $91,000 a year – and who are enrolled in Medicare Part B and/or Part D – pay a surcharge that’s added to their Part B and Part D premiums.
  • IRMAA is determined by income from your income tax returns two years prior.
  • How IRMAA affects Part B premiums depends on your household income.
  • IRMAA surcharges are added to you Part D premiums.
  • You can appeal your IRMAA determination if you believe the calculation was erroneous.

 What is IRMAA?

The Social Security administration determines your IRMAA.  This decision is based upon information provided by the IRS which in turn received the information that you provided based on your tax return.  When the Social Security administration determines that IRMAA applies to you based on your income level, they will send you a notice explaining the determination and giving you a chance to appeal the decision.  20 days or more after receiving the initial notice you will receive a second notice,  this notice will repeat some of the same information as the initial notice but also lets you know when the additional charges will go into effect.  You won’t need to do anything additional to pay the fees they will be automatically added to your monthly Part B and D Medicare premiums.  Your eligibility for IRMAA is evaluated every year so if you have a year where you make less than the amount where IRMAA is triggered the surcharge will go away.  Again you will receive notices of this.   IRMAA is an additional surcharge added to your monthly premium.

Medicare is broken out into several parts that apply to specific topics.  Medicare part A is hospital insurance.  It covers inpatient stays at hospitals, skilled nursing facilities and mental health facilities.  IRMAA does not affect Medicare part A premiums if they paid by the individual, which most individuals don’t.  Medicare part B is medical insurance.  It covers outpatient health services, durable medical equipment and some preventative care.  IRMAA can affect your part B premium.  Medicare Part C, which is referred to as Medicare Advantage.  This place covers services that parts A and B don’t such as dental, vision and hearing.  IRMAA does not affect part C.  Mediare part D is prescription drug coverage.  Part D is affected by IRMAA.  It is an additional surcharged added to your monthly medcare part D premium.  This is also how IRMAA is added to your part B premium.   The part D and B IRMAA surcharges are different and if they are applicable to your situation you pay both of them.  

How is the IRMAA surcharge determined?

IRMAA is determined from your income tax returns for two years prior.  For your 2022 Meidcare premiums, your 2020 income tax return is used and your eligibility is determined an recalculated annually.  The income used to determine your eligibility for IRMAA is called your Modified Adjusted Gross income (MAGI).  There are many different formulas for MAGI.  For Medicare purposes it is a specific Medicare MAGI which includes some additional income sources.  The table below gives a good breakdown of the types of income added to your AGI to compute your MAGI for IRMAA purposes.    

How is IRMAA calculated?

Your eligibility to pay IRMAA is based on information provided from tax returns 2 years prior.   If an individual has a Medicare MAGI of $91,000 or more or a jointly filing household has a Medicare MAGI of $182,000 or more than the monthly premium for Part B is increased from the base monthly premium of $170.10 a month in the amounts noted in the table below.


For Part D, the IRMAA amounts are added to the regular premium of your individual plan.  Each type of plan has a different amount based on the individual’s choice.  The IRMAA surcharge amount is added to that individualized premium to compute a total amount.  If an individual has a Medicare MAGI of $91,000 or more or a jointly filing household has a Medicare MAGI of $182,000 or more than the monthly premium for Part D is increased from the individuals base monthly premium in the amounts noted in the table below.

 

How do I appeal the IRMAA determination?

If you feel that you have been incorrectly determined to be subject to IRMAA charges you can file an appeal.   Contact the SSA to begin the appeals process.  The notice you receive from the Social Security Administration should give you directions on how to do this.  If the Social Security Administration reviews your appeal and agrees with it they will automatically adjust your premiums to reflect the changed amount.  If the Social Security upholds its original decision, you can appeal it a final time.  In the notice of denial of your appeal will be further instructions on how to appeal the denied appeal to the office of Medicare Hearings and Appeals (OMHA).

Financial planning and health insurance go hand in hand.

If your income exceeds $91,000 in 2020, your Medicare Part D and Part B premiums depend on your income. And as you can see in the tables above, the additional premiums can be substantial.

Understanding how this works – including what counts as income as far as Medicare is concerned – is a key part of your financial planning. And since the government will base your premiums on your income from two years ago, you’ll also want to have a good understanding of how to appeal an IRMAA determination, in case you experience a life change that reduces your income.