What Is IRMAA? Do You Owe It?
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 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.