When you enroll in Medicare, you may expect everyone to pay the same monthly premium. Then a notice arrives showing that your Medicare Part B or prescription drug costs are higher than expected.
Why?
For some beneficiaries, the answer is income.
Medicare uses an income based adjustment called the Income Related Monthly Adjustment Amount, or IRMAA. If your income exceeds certain thresholds, you may pay an additional amount for Medicare Part B and Medicare Part D.
If you have been asking, “Does my income affect my Medicare premiums?” or “Why am I paying more for Medicare Part B?” understanding IRMAA can help make sense of what you are seeing.
Medicare IRMAA Explained
IRMAA is an additional amount that some higher income Medicare beneficiaries pay in addition to their regular Medicare Part B premium and, when applicable, their Part D prescription drug plan premium.
IRMAA is not a separate Medicare plan. It is a surcharge tied to income.
The Social Security Administration determines whether you owe IRMAA using income information reported to the Internal Revenue Service. The determination is generally based on your modified adjusted gross income from two years earlier.
For example, your Medicare costs for a particular year may be based on income reported on a tax return from two years before that year.
This delay is important because your financial situation today may look very different from the income shown on that earlier tax return.
Does My Income Affect My Medicare Premiums?
Yes, it can.
Most Medicare beneficiaries pay the standard Part B premium. However, beneficiaries whose income exceeds annually established thresholds may pay an additional Medicare income related surcharge.
IRMAA can also apply to Medicare Part D prescription drug coverage.
The exact income thresholds and surcharge amounts can change from year to year. Your filing status also matters. For that reason, it is important to review the current Medicare and Social Security information rather than relying on an income limit you remember from a previous year.
If you are subject to IRMAA, you generally receive a notice from Social Security explaining the determination and the income information used.
Why Am I Paying More for Medicare Part B?
Receiving an IRMAA notice sometimes surprises people because their current income may be substantially lower than it was two years ago.
This is particularly common around retirement.
Imagine that you worked full time two years ago and earned a higher salary. You have since retired, and your current income is considerably lower. Social Security may initially calculate your IRMAA using the older tax return showing your higher working income.
Other financial events can also affect your modified adjusted gross income. A large capital gain, retirement account distribution, or another source of taxable income could potentially contribute to a higher income figure for a particular year.
This is why understanding the tax year used for your IRMAA determination is so important.
What Income Does Medicare Use for IRMAA?
For IRMAA purposes, Social Security generally looks at modified adjusted gross income.
In this context, modified adjusted gross income is generally your adjusted gross income plus tax exempt interest income.
Social Security receives this information from the IRS and uses it to determine whether an income related adjustment applies.
Because IRMAA is based on tax information, questions about how a specific withdrawal, investment decision, or other financial transaction could affect your taxable income should be discussed with a qualified tax or financial professional.
Medicare planning and tax planning can overlap, particularly as you approach retirement.
What Is IRMAA and Who Has to Pay It?
IRMAA applies only when a beneficiary’s income exceeds the applicable threshold for the year.
It is important to understand that Medicare costs based on income are not permanent simply because you paid IRMAA once.
Income can change from year to year, and IRMAA determinations can change as well.
If your income decreases in a later year, your future Medicare costs may also change once the newer income information is used.
That makes IRMAA something worth reviewing annually, especially if your income fluctuates during retirement.
What If My Income Has Gone Down?
There are circumstances in which you may be able to ask Social Security to reconsider an IRMAA determination after a significant reduction in income.
Social Security recognizes certain life changing events that may affect the income used to determine IRMAA. These can include events such as marriage, divorce, the death of a spouse, loss of income producing property, loss of certain pension income, or stopping or reducing work.
Retirement is particularly important. If you recently stopped working or reduced your hours and your income has fallen substantially, the older tax return used for your IRMAA calculation may no longer reflect your current financial situation.
A qualifying event does not automatically mean an adjustment will be granted. Social Security determines eligibility based on the circumstances and documentation provided.
How Do You Request a New IRMAA Determination?
If you believe your IRMAA is based on outdated income because of a qualifying life changing event, you can request that Social Security reconsider its determination.
Social Security uses Form SSA-44, Medicare Income-Related Monthly Adjustment Amount, Life-Changing Event, for many of these requests.
You may need documentation showing both the qualifying event and your reduced income.
Because each person’s situation is different, it is important to follow the instructions in your Social Security notice and provide accurate supporting information.
Does IRMAA Affect Medicare Advantage?
IRMAA can sometimes create confusion for people enrolled in Medicare Advantage.
You still must maintain Medicare Part B to participate in a Medicare Advantage plan, so an income related adjustment to your Part B premium can still apply.
If your Medicare Advantage plan includes Part D prescription drug coverage, a Part D IRMAA may also apply if your income exceeds the applicable threshold.
The surcharge is related to Medicare’s income rules rather than being an additional premium created by your Medicare Advantage plan.
Plan for Medicare Costs Before Retirement
IRMAA is a good example of why Medicare planning should begin before retirement whenever possible.
Your Medicare expenses are influenced by more than the plan you choose. Income, prescription needs, healthcare usage, enrollment timing, and other factors can all affect what you ultimately pay.
If you are approaching Medicare eligibility, it can be helpful to understand how your current income may affect future Medicare premiums. If you are already enrolled, review any IRMAA notice carefully rather than assuming the amount cannot change.
The key is to understand what income Medicare is using, why the surcharge applies, and whether your current circumstances may qualify for a new determination.
Medicare IRMAA can feel complicated, especially when Medicare, Social Security, and tax rules intersect. If you have questions about your Medicare coverage, Part B costs, Part D options, or how IRMAA fits into your overall Medicare planning, Mindful Medicare Solutions can help you understand the Medicare side of the equation and identify questions you may want to discuss with your tax or financial professional. Contact us to get started.
