IRMAA Income Related Monthly Adjustment AmountsCategory:
Many years ago, I was still new to the Medicare insurance business. I had a few hundred clients but no high-income earners. I knew what Medicare IRMAA was, but I had never met someone subject to the IRMAA tax before. Doug was an improbable candidate. After many years and thousands of clients later, I definitely know what Medicare IRMAA is in 2023.
Don’t Judge A Book by Its Cover
Doug showed up at my office on a loud Harley Davidson hog. His hair was longer than mine, but that’s saying nothing. He was a big dude, and his leathers made him even bigger. We sat down and took care of Medicare business.
A few months later, when Doug’s Medicare started, I got a distressed phone call. “You said my Medicare premium was going to be this amount. It’s three times that!”
I was befuddled. I got my calculator out, but I couldn’t figure out why it was so high. Finally, I said, “Your income would have to be unusually high to be charged that much.”
Doug got quiet. “How high?” he asked. The first IRMAA bracket was $85,000 for a single person at the time. Doug guffawed and said, “Hell, my income is way more than that.”
Turns out Doug was not only a retired municipal employee with a pension and Social Security. He was also retired military with a 20-year pension. On top of that, he had built up a stock portfolio that kicked out around $30,000 in dividend income a year.
I should have taken the adage, ‘Don’t judge a book by its cover’ more seriously.
Since then, I always bring up income in my introductory meetings and how income affects Medicare Part B premiums. Zip code and fashion choices are no guaranteed ways to determine Medicare IRMAA in 2023.
What Is Medicare IRMAA in 2023?
IRMAA stands for Income Related Monthly Adjustment Amount. The government loves acronyms. Medicare IRMAA is a surcharge that high-earners pay for their Medicare insurance coverage to Social Security.
Everyone pays a tax for Medicare during their working years. The Medicare tax is included in the FICA (Federal Insurance Contribution Act) you pay, and that is recorded on your pay stubs. Your Medicare tax is currently 1.45%. It is graduated up for higher earners.
In 1966 when the Medicare program began, the cost to workers was $3 per person per month, which is approximately $30 in today’s dollars. The baby boomers are leaving the workforce in huge numbers, so fewer workers are paying the Medicare tax. Medicare tax revenue is dropping in relation to the number of beneficiaries.
As they leave the workforce, Baby Boomers enter Medicare. The number of workers paying in is contracting, and people taking out is ballooning. Expenses are climbing. The current demographics are crushing Medicare’s ability to provide the same level of services because expenses are outpacing tax revenue.
Medicare Prescription Drug Improvement & Modernization Act
In 2003 Congress passed the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA). In the legislation, Congress addressed the coming shortfall in Medicare revenue. The answer was to raise the price of Medicare for the top 7 percent of earners. There are currently 65 million Medicare beneficiaries. IRMAA will affect approximately 4.6 million people in 2023.
I don’t say tax because, technically, it is not a tax.
Most Medicare beneficiaries pay less than 25 percent of the real Medicare cost. The current Part B premium is $164.90. That is only about a fifth of the actual cost. In the MMA, Congress increased the amount a citizen paid for their Medicare insurance based on their income. The IRMAA increases the percentage that upper-income Medicare beneficiaries pay. Instead of paying only 25 percent of the cost, they pay 35, 50, 65, 80, or 85 percent of the actual Medicare Part B cost. The additional revenue is allocated to offset Medicare’s budget.
How Do the IRMAA Brackets Work?
Medicare IRMAAs is an unusual calculation compared to federal income tax brackets.
You do not pay a federal income tax rate on everything you make. The government divides your taxable income into chunks — also known as tax brackets — and each chunk gets taxed at a progressively higher rate. The beauty of this is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income. It is only the “chunk” in that bracket that is taxed at that rate.
Medicare IRMAA in 2023 utilizes a “cliff” style of assessment instead. That means if you are just $1 over the cut-off for the next tier of IRMAA, you will pay the higher amount. There are no brackets for each chuck of income like federal income tax and no graduation or progression in the amount you pay. The Medicare 2023 Part B IRMAA premium brackets change when you earn one dollar more above the line.
What Is Medicare IRMAA Based Upon?
The IRS and Social Security work with Medicare. Your income is based on your most recent tax filing. So, for example, you are going on Medicare in 2023. The most recent tax filing was in 2022 for 2021. Generally, IRMAA is based on a two-year lag in your income.
How Is Medicare IRMAA Calculated in 2023
Medicare IRMAA 2023 brackets are derived from your adjusted gross income (AGI). The AGI, however, differs from the MAGI (Modified Adjusted Gross Income) you usually think of when doing your taxes. AGI for IRMAA is a Medicare-specific form of MAGI. It is your AGI with tax-exempt bonds–both earned and accrued interest–added back. Interest from U.S. Savings bonds used for higher education is added back. Earned income from working abroad that was not added to gross income is included. MAGI (Modified Adjusted Gross Income) for Medicare is different than what is usually meant by MAGI for non-healthcare-related purposes.
You will be sent your Medicare IRMAA Initial Determination Notice soon after you enroll in Medicare Part B. Confirm the numbers SSA/CMS/IRS are correct.
Medicare Financial Planning
Examine the Medicare IRMAA 2023 brackets to see if you are close to any of them. What are your plans for the future? Will you withdraw from retirement savings this year or in future years? Will you sell your home at some point to downsize or move to a one-story home? Will you sell a large amount of stock, property, or other appreciated assets?
Any of these actions may increase your income substantially enough to move you into and/or up the IRMAA brackets requiring you to pay more. Knowing and planning for these events, you can move assets in smaller amounts over time to avoid large spikes in income and, consequently, increases in income tax and IRMAA.
How Do I Reduce Medicare IRMAA?
Charitable donations of cash, appreciated assets, and appreciated stock can reduce your taxable and IRMAA surcharge as well as contributions to 401ks, IRAs, and other qualified programs. Some minor adjustments may drop you down a bracket and save you some money.
What Are Medicare IRMAA Brackets for 2023?
Since 2007 some Medicare beneficiary’s Part B monthly premium included a surcharge based upon income. The Medicare IRMAA for 2023 is in the table below.
|Couple||IRMAA Surcharge Part B||
Total Monthly Premium
|Less than $97,000||Less than $194,000||$0.00||$164.90|
|$97,000 < $123,000||$194,000 < $246,000||$65.90||$230.80|
|$123,000 < $153,000||$246,000 < $306,000||$164.80||$329.70|
|$153,000 < $183,000||$306,000 < $366,000||$263.70||$428.60|
|$183,000 < $500,000||$366,000 < $750,000||$362.60||$527.50|
|Greater than $500,000||Greater than $750,000||$395.60||$560.50|
Since 2011, higher-income Medicare beneficiaries have paid a surcharge on top of their Medicare Part D premium. The Medicare IRMAA for 2023 for prescription drug plans is in the table below. This does not include premiums for specific Medicare Part D plans, Medicare supplements, or Medicare Part C/Medicare Advantage plans. The totals only reflect Part B premium and Medicare IRMAA 2023 surcharges. These IRMAA surcharges for Part D are a completely different idea from the Part D Gap (or Donut Hole).
|Couple||IRMAA Surcharge Part D||
Total Monthly Premium
Part B & Part D
|Less than $97,000||Less than $194,000||$0.00||$164.90|
|$97,000 < $123,000||$194,000 < $246,000||$12.20||$243.00|
|$123,000 < $153,000||$246,000 < $306,000||$31.50||$361.20|
|$153,000 < $183,000||$306,000 < $366,000||$50.70||$479.30|
|$183,000 < $500,000||$366,000 < $750,000||$70.00||$597.50|
|Greater than $500,000||Greater than $750,000||$76.40||$636.90|
Are There Exceptions to Medicare IRMAA Brackets?
No exceptions if your income falls within one of the tiers, but IRMAA has a two-year lag between when you filed your income tax and what Social Security Administration (SSA) assesses you. A lot can affect your income in that time, so SSA considers “life-changing events” when applying the IRMAA surcharge.
- Death of a Spouse
- Divorce / Annulment
- Work Reduction
- Work Stoppage
- Loss of Income from Property
- Loss or Reduction of Pension income
- Employer Settlement Payment
Death of a Spouse
Losing a spouse is tragic. The other effect is your income may be reduced because they are no longer bringing in income: Social Security and/or work income.
You will need to file the SSA-44 form with proof of death and an estimate of your new income for that year due to your loss.
The first IRMAA bracket is for income over $97,000 for a single individual. The first IRMAA tier for joint filers is over $194,000. Marriage may dilute your total income, so you fall below the IRMAA joint bracket. No need to overpay.
In that case, file the SSA-44 form with proof of marriage. Give an estimate of your new joint income. You will not need to pay the tax that year or less because you move down an IRMAA bracket.
Divorce / Annulment
Divorce or annulment can have the opposite effect. The IRMAA is based only on your income. You are now single, and your income may have been significantly reduced. Subtract your ex-spouse’s income. That may put you below the $97,000 threshold or lower your bracket. Don’t overpay.
In that case, file the SSA-44 form with the divorce decree and an estimate of your newly reduced income.
Many times as I help clients move toward Medicare and retirement, they continue to work. But, they work less. Or they get a part-time job.
If I ever retire, my part-time gig will be at the local golf course. I have had several friends and clients do that–for the free golf. The perfect retirement job!
If your income drops below $97,000/$194,000 or one of the other tiers, quickly complete the “Life-Changing Event” form so you only pay what is necessary. Complete the SSA-44 with proof, such as pay stubs, employer statements, or other reduced income documentation.
Work stops when you retire. It also stops when laid off or fired. The company is sold or shuddered. Illness or injury can stop you from working. All of which drastically affect your income.
Include any documentation, like correspondence from your company, public notices, and minutes from corporate board meetings, medical bills with your SSA-44 form to Social Security.
Loss of Income from Property
This one is undoubtedly applicable because of the COVID situation. Many landlords lost significant income when renters were not required to pay for long periods.
Income may be lost because of natural disasters, destruction of property through fire, or accidents. I remember a friend who had disease run through his hog confinements. He lost tremendous amounts of income for a year. Submit supporting documentation with SSA-44 to SSA.
Loss or Reduction in Pension Income
Some organizations will distribute a pension for a fixed period of time, such as 20 years. The pension income ends, and then you go on Medicare. The IRA, however, has that income included in your last tax return. You will need the appropriate documentation with the SSA-44 to appeal.
Employer Settlement Payment
Businesses close all the time. Some businesses do not end well. Suppliers are owed money. Banks and shareholders are owed money. Employees are stiffed for months of salary, commission, or other forms of remuneration. There eventually may be a lump sum settlement that comes, which raises your income in that year. Again, another life-changing event that will grant an exception. Documentation is essential.
Depending upon your IRMAA bracket, you will be paying at least $937 per year or more. Don’t pay that if you don’t have to. The appeal process is reasonably simple and straightforward if you qualify with one or more life events. No need to pay more than your fair share.
The Bottom Line On Medicare IRMAA in 2023
Medicare has rules. Lots of rules, including how much you pay if you are successful in our country. We are about helping you navigate the rules, and in the case of Medicare IRMAA for 2023, making sure you do not pay one penny more than is required.
If you fall into one of the Medicare IRMAA brackets, talk with your financial planner and tax consultant about minimizing the damage. Get started positioning assets well before 65 and have a plan to move yourself down the Medicare IRMAA brackets.
If you fall into one of the “Life Changing Event” categories, do not ignore the opportunity. Fill out the form, attach the documentation, and get your exemption.
We are licensed and experienced insurance professionals. This may be your first Medicare IRMAA rodeo this 2023. It is not ours. Give us a call and speak with a licensed agent at 402-614-3389.
IRMAA Tax Definition
Many of you may see the letters IRMAA when learning about Medicare. The government loves acronyms. IRMAA stands for Income-Related Monthly Adjustment Amounts. It is based on a person’s modified adjusted gross income (MAGI). The IRS uses a tiered scale. Your Medicare Part B and Part D premium will cost more based upon the income thresholds you cross for that year. How you file your taxes also determines where you fall in the IRMAA brackets and thus the amount you pay. Be conscious of your tax filing status. Married filing separately can have a devastating effect.
I was helping a new client prepare for Medicare a few years ago. His income alone was over $120,000 not counting his wife’s income. She was five years younger and had health insurance through her employer. Her income was quite a bit smaller. The IRMAA brackets were much lower than the IRMAA 2022 brackets now. My client had only crossed the first rung of the IRMAA threshold. His Part B premium was going to be just a little over the Part B premium most people were paying at the time.
He called me a month before his Medicare started. He was almost hysterical because his IRMAA premium was over $400 per month. I said it was a mistake and had him call Social Security.
It turned out not to be a mistake. As the story unfolded, I discovered that he was estranged from his wife. They were still legally married. As a matter of fact, they had been divorced, and he remarried her again. They lived in the same residence–he lived upstairs and she lived downstairs–but they filed separate tax returns. She absolutely refused to file jointly, and he would not divorce her because of the financial consequences.
My client fell into the bizarre category of “Married Filing Separately.” You can see on the IRMAA Chart for 2022 what that does to the premium. Even the lowest income earner on the IRMAA chart pays the same premium as the highest earners!
After decades in the insurance industry and thousands of clients, you eventually see everything!
He canceled his Medicare and stayed on his employer’s health plan that was terrible coverage rather than pay the IRMAA Medicare tax.
IRMAA rules are the same if you are on Original Medicare with a supplement and Part D plan or a Medicare Advantage plan. The Medicare tax is imposed on all Medicare benefits whose income is above the tiered IRMAA limits. IRMAA affects 5% of Medicare beneficiaries. IRMAA 2022 rates went up significantly from IRMAA 2021.
IRMAA Brackets for 2022
|your yearly income in 2020 (for what you pay in 2022) was||You pay each month (in 2022)|
|File individual tax return||File joint tax return||File married & separate tax return|
|$91,000 or less||$182,000 or less||$91,000 or less||$170.10|
|above $91,000 up to $114,000||above $182,000 up to $228,000||Not applicable||$238.10|
|above $114,000 up to $142,000||above $228,000 up to $284,000||Not applicable||$340.20|
|above $142,000 up to $170,000||above $284,000 up to $340,000||Not applicable||$442.30|
|above $170,000 and less than $500,000||above $340,000 and less than $750,000||above $91,000 and less than $409,000||$544.30|
|$500,000 or above||$750,000 and above||$409,000 and above||$578.30|
What Is IRMAA Part D?
The IRMAA Part D prescription drug element of Medicare has a separate charge for the higher income brackets from the Medicare Part B health insurance. The IRMAA for Part D affects 8 percent of people on Medicare prescription drug plans. Medicare IRMAA Part D is on top of the cost of the prescription drug plan itself. Each Part D plan has its own monthly premium the insurance companies collect.
The IRMAA Medicare Part D can be deducted from your Social Security or bank account. Below are the new rates for Medicare Part D IRMAA 2022.
|File individual tax return||File joint tax return||You pay each month (in 2022)|
|$91,000 or less||$182,000 or less||$0.00|
|above $91,000 up to $114,000||above $182,000 up to $228,000||$12.40|
|above $114,000 up to $142,000||above $228,000 up to $284,000||$32.10|
|above $142,000 up to $170,000||above $284,000 up to $340,000||$51.70|
|above $170,000 and less than $500,000||above $340,000 and less than $750,000||
|$500,000 or above||$750,000 and above||
How Does IRMAA Work?
The Social Security Administration (SSA) will notify you within which IRMAA 2022 brackets you fall. The notification is an initial determination. In the notice, your rights will be spelled out and an appeal form included.
I suggest you verify that your tax information is correct and your income falls within the IRMAA limits Social Security specifies. Double-check you are looking at the IRMAA 2022 brackets. The official numbers come out each year by the first of the year and are found on the Medicare.gov website.
The IRS provides SSA with your tax information. In the initial determination and before the tax is applied, check the accuracy of the IRS’s information. Make sure SSA has your correct income, filing status, and year. If your income decreased significantly because of a life-changing event (LCE) consider a Medicare IRMAA appeal to SSA.
SSA’s determination can change from year to year based upon the rise or fall of your income. Income is not only earned income but also qualified money from retirement accounts, sales of property and stock, and other investment income. Consult with your tax advisor for the relevant and current information for your situation. The IRMAA tax is based upon your income going back two years. The IRMAA limits can change each tax year.
I warn clients about the IRMAA tax, but inevitably I get the hesitant phone call. ‘What is this bill from Social security about?’ I remind them of the past conversations, and for those prospective high-income earning clients, the discussion around IRMAA might determine whether they stay on their employer health plan or go on Medicare.
Sometimes, it makes financial sense–if you plan on working anyway–to stay on the employer health plan, and not enroll in Medicare Part B. The cost of Medicare and the IRMAA tax may be substantially more than what you pay in premiums for your health plan at work. As much as I prefer to acquire clients than not, I have recommended several individuals over the years to stay on their employer health plan.
I spoke with a surgeon the other day. He is now 70. We have talked each year for the past five. He works as a research consultant at a much-reduced salary. He is effectively part-time. His employer provides health coverage for him and his wife that is as good as Medicare for a much lower price than what he would pay because of IRMAA. He and his wife only have Medicare Part A. As his income decreases, they may eventually transition to full Medicare, but with the IRMAA brackets where they are, staying off Part B and not paying IRMAA tax is better.
Here are the IRMAA chart 2022 exceptions broadly considered. There are more reasons for an IRMAA appeal than can be easily listed. This list is not exhaustive.
Tax return inaccurate or out of date
A Life-Changing Event (LCE) that affects the beneficiary’s modified adjusted gross income
|There are 7 qualifying life-changing events:
The most common exception that has occurred among my clients over the years is a large IRA withdrawal. When people go to retire, some make a one-time large withdrawal from their IRA. The purposes vary. The most common one is to pay off a home mortgage upon retirement.
Of course, you pay the deferred taxes on the qualified money withdrawn from the IRA, but in terms of Medicare, the money is considered income even though it is retirement assets. You did not take the IRA contributions as income when you deferred them into your retirement account, so the government wants the taxes when you realize it as income. But, it is then counted as income for purposes of Medicare IRMAA.
More importantly, the result of an IRA withdrawal is to raise your income that year a considerable amount over your normal income. The IRMAA tax may apply, even though it is not your normal income. I have found those who go through the appeal process frequently receive a favorable decision in this kind of instance. I can help you with the form. The IRMAA appeal form is on the Social Security website.
The Mechanics of IRMAA
CMS (Center for Medicare & Medicaid Services) calculates IRMAA and publishes it yearly in the Federal Register. Once the IRMAA is calculated, CMS informs Social Security. Social Security has access to your income and tax information through the Internal Revenue Service (IRS). They communicate IRMAA determination. Social Security, which administers Medicare, notifies you of whether you need to pay more than the standard premium. The standard premium for Part B in 2021 was $148.50. Part B 2022 premium increased to $170.10 at the first of the year. Part D premium varies upon the prescription drug coverage.
IRMAA Medicare is based upon your modified adjusted gross income (MAGI) that the Internal Revenue Service (IRS) will report. Social Security considers years prior. They go back two years to determine the IRMAA surcharge. The IRMAA will adjust each year based upon that year’s MAGI. The surcharge is applied to the Part B premium and the Part D premium.
IRMAA Part D payments are paid separately to Medicare, and you must pay them even if your employer or another third party (such as a retirement system) pays your Part D plan premiums. You will receive a Medicare Premium Bill each month for your Part D IRMAA and you can pay it in the same way you pay your Part B premiums. You do not pay Medicare IRMAA Part D to your prescription drug plan.
Keep in mind that Medicare treats IRMAA payments the same as other premium bills, which means that you could lose your health insurance coverage if you do not make your payments on time each month.
How to Appeal Social Security IRMAA?
The Office of Medicare Hearing and Appeals handles all appeals for IRMAA tax. There are two categories of Medicare IRMAA appeals.
- The calculation is incorrect.
- A life-changing event.
The specific life-changing events are marriage, divorce, death of a spouse, reduction in work hours and/or termination, loss of income-producing property, or loss of pension. You submit the Medicare IRMAA appeal form to the Office Medicare Hearing and Appeals where Social Security determines if the tax will be reduced.
As I am writing this article, I can no longer find the appeal form on the Medicare.gov or CMS.gov websites where is generally where you could find this form without much difficulty. After an hour’s search, I gave up. Hopefully, they will put the form back upon the website soon.
If you fall in the IRMAA tax category, it is something to seriously consider as you go on to Medicare. The tax may be temporary as your income declines in retirement, but for those whose income remains in the higher tiers, you may wish to consider other alternatives.
As always, if you need help navigating the archine world of Medicare and Medicare insurance, please give us a call at 402-614-3389.