- Beneficiaries who earn over $88,000 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 in 2021 (this limit is projected to increase to $91,000 in 2022).
- 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.
- The SECURE Act of 2019 could further affect your premiums.
What is IRMAA?
For Medicare beneficiaries who earn over $88,000 a year – and who are enrolled in Medicare Part B and/or Medicare Part D – it’s important to understand the income-related monthly adjusted amount (IRMAA), which is a surcharge added to the Part B and Part D premiums.
How is my income used in my IRMAA determination?
IRMAA is determined by income from your income tax returns two years prior. This means that for your 2021 Medicare premiums, your 2019 income tax return is used. This amount is recalculated annually. The IRMAA surcharge will be added to your 2021 premiums if your 2019 income was over $88,000 (or $176,000 if you’re married), but as discussed below, there’s an appeals process if your financial situation has changed.
For 2022 (based on 2020 income), the IRMAA surcharges are projected to start at $91,000 for a single individual and $182,000 for a married couple.
You will receive notice from the Social Security Administration to inform you if you are being assessed IRMAA.
The income used to determine IRMAA is a form of Modified Adjusted Gross Income (MAGI), but it’s specific to Medicare. The Modified Adjusted Gross Income is different from your Adjusted Gross Income, because some people have additional income sources that have to be added to their AGI in order to determine their IRMAA-specific MAGI.
It’s important to understand that MAGI for calculating IRMAA isn’t the same as the normal MAGI that you might be accustomed to for non-healthcare purposes, nor is it exactly the same as MAGI for calculating premium tax credits and Medicaid/CHIP eligibility under the Affordable Care Act. Table 1 in this Congressional Research Service brief is useful in seeing how MAGI is determined for IRMAA calculations.
How much are Part B IRMAA premiums?
If an individual makes $88,000 or more – or a jointly filing household makes $176,000 or more – then the IRMAA assessment increases the 2021 Part B premium to the amounts shows in Table 1.
|Table 1. Part B – 2021 IRMAA|
|$88,000 or less||$176,000 or less||$148.50|
|> $88,000 – $111,000||> $176,000 – $222,000||$207.90|
|> $111,000 – $138,000||> $222,000 -$276,000||$297.00|
|> $138,000 – $165,000||> $276,000 – $330,000||$386.10|
|> $165,000 – $500,000||> $330,000 – $750,000||$475.20|
|Greater than $500,000||Greater than $750,000||$504.90|
This level has risen from 2019, when the income requirements were $85,000 and $170,000 respectively. 2020 was the first year that these MAGI income requirements were adjusted for inflation. Going forward, the Modified Adjusted Income requirements will continue to be adjusted by inflation (CPI). For 2022, the lower threshold for IRMAA surcharges is projected to be $91,000 and $182,000, respectively.
How much are Part D IRMAA surcharges?
For Part D, the IRMAA amounts are added to the regular premium for the enrollee’s plan (Part D plans have varying prices, so the full amount, after the IRMAA surcharge, will depend on the plan).
Note that if you are a Medicare Advantage policy member – and that plan includes prescription drug benefits – then both Part B and Part D IRMAAs are added to the plan premium (Medicare Advantage enrollees always pay the Part B premium in addition to any premium charged by their Advantage plan).
The following income levels (based on 2019 tax returns) trigger the associated IRMAA surcharges in 2021 (note that the income amounts have increased since 2020, but the Part D IRMAA surcharges are slightly lower than they were in 2020).
|Table 2. Part D – 2021 IRMAA|
|$88,000 or less||$176,000 or less||Plan Premium|
|> $88,000 – $111,000||> $176,000 – $222,000||$12.30 + Plan Premium|
|> $111,000 – $138,000||> $222,000 -$276,000||$31.80 + Plan Premium|
|> $138,000 – $165,000||> $276,000 – $330,000||$51.20 + Plan Premium|
|> $165,000 – $500,000||> $330,000 – $750,000||$70.70 + Plan Premium|
|Greater than $500,000||Greater than $750,000||$77.10 + Plan Premium|
Can I appeal the IRMAA determination?
You can appeal the IRMAA determination – filing for a redetermination – if you believe that your calculation is erroneous. In addition, if you have had a life-changing event such as a loss of income or divorce, then you can refile or you can file for a redetermination using Form SSA-44.
If you do not agree with a redetermination, there is a formalized appeal process – the third level of appeal – technically called the Decision by Office of Medicare Hearings and Appeals (OMHA). (Note that this a different procedure from the appeal or grievance procedure when you receive denials of service from Medicare Parts A, B, or D.)
The SECURE Act and IRMAA
Further complications have been introduced as a result of the SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019), which was enacted in late 2019. The SECURE Act has a number of different features – such as allowing IRA contributions after age 70½ if you’re still earning an income – and it extends the minimum age that one must receive RMDs (Required Minimum Distributions) from 70½ to 72. Note that those who are already at least 70½ must continue to receive RMDs.
The reason this may be important is that it is possible that delaying receiving RMDs may also reduce IRMAA if your Modified Adjusted Gross Income is close to the limits stated in Tables 1 and 2.
The reason this is important is that people withdraw from qualified funds such as a 401(k), IRA, or 403(b), and these funds are taxable, once they are transferred to your individual checking, savings or brokerage account (assuming the account wasn’t a Roth). The amount distributed is added to your taxable income, so exercise caution when you’re receiving distributions from qualified funds. This additional income will increase your Modified Adjusted Gross Income, and may subject you to higher Medicare Part B and Medicare Part D premiums.
Further, non-qualified funds must also be tracked because of the way that mutual funds capital gains and dividend distributions are made. At the end of every year, many mutual funds distribute capital gains or dividends to those with mutual fund holdings. As a result, people can unknowingly earn more income as a result of investments, and the result can be higher Medicare premiums.
The inverse is also true and now may be more applicable to you: realized capital losses can reduce your MAGI, and could potentially reduce your Medicare Part B and Part D premiums.
We recommend that you speak with a tax planner or financial advisor if you have questions about your specific circumstances, including investment income or your plans to withdraw money from your retirement accounts.
Financial planning and health insurance go hand in hand
If your income exceeded $88,000 in 2019, your 2021 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.
Jae W. Oh is a nationally recognized Medicare expert, frequently quoted in the national press, including on USA Today, Dow Jones, CNBC, and Nasdaq.com, as well as on radio talk shows nationwide. His book, Maximize Your Medicare, is available in print and ebook formats. Jae has appeared as a speaker in front of libraries, companies, as part of college-sponsored programs. The Managing Principal of GH2 Benefits, LLC, Jae is a Certified Financial Planner, Chartered Life Underwriter, a Chartered Financial Consultant, and a licensed insurance producer in multiple states.