What Is Medicare IRMAA For 2023?

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.

Individual	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).

Individual	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
• Marriage
• 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.

Marriage

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.

Work Reduction

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 Stoppage

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.