-cIf your clients have never heard of the IRMAA surcharge, it’s probably because they aren’t paying it, but that doesn’t mean they won’t have to pay it in the future. Here’s what you need to know about IRMAA and how it impacts Medicare Part B and D premiums when income rises above a certain threshold.
History of IRMAA and Why It Was Created
IRMAA (Income-Related Monthly Adjustment Amount) was enacted in 2003 as part of the Medicare Modernization Act (MMA), which overhauled Medicare and created the program we are familiar with today. To stabilize the finances of the Medicare program, the MMA established premium adjustments for wealthy beneficiaries who, due to their higher incomes, had to pay more for their Medicare benefits.
How IRMAA Is Calculated
IRMAA surcharges are based on an individual’s modified adjusted gross income (MAGI) from two years prior. This means what they pay in 2025 will be based on their 2023 tax returns. The MAGI amount is calculated each year and may change, depending on how much an individual’s income fluctuates.
The IRMAA surcharge is calculated on a sliding scale with five income brackets, which are adjusted each year for inflation. In 2025, individuals with 2023 MAGI of more than $106,000 and married couples filing jointly with 2023 MAGI of more than $212,000 will pay more for their Part B and D premiums.
What Triggers IRMAA Charges?
Some common financial scenarios impact taxable income and trigger IRMAA surcharges. These include:
- Enrolling in Medicare after retiring – It is not uncommon to enroll in Medicare upon retirement, but it is likely that income from the two years prior (when the person was working) was higher, which could affect premiums for the first two years of retirement.
- RMDs – The start of required minimum distributions at age 73 could create an increase in income that may trigger IRMAA surcharges.
- Selling a home – Capital gains from the sale of a home that exceeds the allowed exclusion amount is taxable income and will show up in IRMAA calculations two years later.
- Roth conversions – The amount converted to a Roth IRA is taxable income.
- Inheriting an IRA – Withdrawals from inherited IRAs are taxable income.
- Municipal bond income – This interest income is added to MAGI.
Certain strategies can lower MAGI to reduce IRMAA. These include making charitable contributions and timing the sale of assets or withdrawals from retirement accounts to minimize the impact. A tax professional can identify ways to reduce taxable income.
Notification of an IRMAA Surcharge
The Social Security Administration (SSA) determines IRMAA eligibility and may notify Medicare beneficiaries of an IRMAA charge at any time of the year. If SSA decides an IRMAA applies, it will send a predetermination letter in the mail, advising the beneficiary of the IRMAA charge and explaining how it was calculated. It will also inform the beneficiary of how to request a new initial determination if the information used to calculate the charges was incorrect. Information could be incorrect due to an error on a tax return or because the beneficiary filed an amended tax return. Beneficiaries can request a redetermination if they experienced a life-changing event that impacted income, such as:
- Marriage, divorce, or annulment
- Spouse’s death
- Loss of job or reduced hours
- Loss of income-generating property
- Reduction or loss of a pension
- A settlement from an employer
Circumstances not considered life-changing events include:
- Loss of alimony or child support
- Voluntary sale of real estate
- Higher healthcare costs
If the SSA denies a request for a redetermination, beneficiaries can request an appeal.
By understanding IRMAA, you will be able to explain to your clients why they might be paying higher Medicare premiums. This will help them take steps to reduce or eliminate potential IRMAA surcharges.
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