Income-Related Monthly Adjustment Amount (IRMAA)

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, often abbreviated as IRMAA, is a surcharge added to monthly Medicare Part B and Part D premiums, for Medicare recipients based on their annual income. In effect, IRMAA reduces the subsidy that high-income beneficiaries receive from Medicare. Although not described as a tax, it can behave as a tax-like cost for retired Medicare recipients, increasing the marginal tax rate on retirement income, such as withdrawals from pre-tax 401k's and IRA's. For simplicity, IRMAA surcharges are included with income taxes in marginal tax rate calculations except where explicitly separated. This page describes IRMAA, situations when it does and doesn't apply, and strategies for minimizing its cost in conjunction with taxes.

About 5.0 million Medicare beneficiaries, about 10% of total, are affected by IRMAA. In 2021, IRMAA generated $11.2B of revenue for Medicare.

Calculation
For a given year, IRMAA surcharges are based on the Medicare recipient's Modified Adjusted Gross Income (MAGI) two years prior. For example, IRMAA for 2022 Medicare premiums is based on MAGI in 2020. Medicare recipients will receive an initial IRMAA determination from the Social Security Administration (SSA) based on tax data automatically supplied to the SSA by the IRS, and a determination will be reissued each year if warranted by income. The brackets are adjusted for inflation each year (rounded to the nearest $1,000). For joint filers, the bracket numbers are twice the bracket numbers for single filers (with the exception of the top bracket which is 1.5 times the top single bracket). The IRMAA tiers for single, Married Filing Jointly (MFJ), and Married Filing Separately (MFS) Medicare recipients in 2022 are listed in Tables 1, 2, and 3 below. The single IRMAA tiers also apply to Head of Household and Qualified Widow(er) with Dependent Child.

The IRMAA tiers do not behave the same way as the tax brackets for income tax most taxpayers are familiar with. IRMAA surcharges kick in abruptly once an IRMAA tier boundary is crossed, and so create a spike in the marginal tax rate, when the IRMAA surcharge is included. For taxpayers close to an IRMAA tier boundary, this means that the marginal tax rate on a change in income can be very large. This also means that changes in income that do not cross an IRMAA tier boundary have an IRMAA marginal tax rate of zero.

Note that you’re required to pay the Part D IRMAA, even if your employer or a third party (like a teacher’s union or a retirement system) pays for your Part D plan premiums. If you don’t pay the Part D IRMAA and get disenrolled, you may also lose your retirement coverage and you may not be able to get it back.

Also note that IRMAA nullifies any hold harmless benefit you have accumulated. If you have not been subject to IRMAA for many years, your Part B premium might be lower than the standard amount (currently $164.90) because the hold harmless provision constrained its growth to that of your Social Security COLA. But a single year of IRMAA undoes that, and your Part B premium resets to the standard amount.

Managing IRMAA Costs
IRMAA surcharges should be managed in conjunction with other taxes. For taxpayers who have some control over their taxable income, the best approach is usually to set taxable income slightly below the top of one of the IRMAA tiers. Some IRMAA cost management approaches require planning, so future Medicare recipients should begin planning for the effects of IRMAA around age 60, or possibly even younger.

An additional challenge with IRMAA planning comes from the two-year delay in IRMAA costs. A taxpayer in a given year trying to decide how much taxable income to generate (for example, by selling appreciated assets or Roth conversions) will have to guess what the IRMAA tier thresholds will be in two years, which depends on the inflation rate during that time span. If inflation is lower than expected, the taxpayer could cross into the next higher tier and pay an extra spike in IRMAA costs. Alternatively, assuming no inflation could deprive the taxpayer of valuable income space. IRMAA tables for a given year are published in October or November of the year prior, so a taxpayer trying to precisely predict IRMAA thresholds could at least wait until after they are released for the following year, so at least data for one of the two years is available. It is also possible for IRMAA tier dollar amounts to decrease in a period of deflation.

To illustrate this challenge, note that numerical examples here use the 2023 tiers, based on 2021 income, but it is likely (e.g., see 2022 2023 2024 Medicare Part B IRMAA Premium MAGI Brackets) that 2025 IRMAA tiers, based on 2023 income, will have higher breakpoints due to inflation.

Example: Spreading out withdrawals
A 75-year-old single taxpayer has a baseline taxable income of $65,000, comprised of Social Security benefits and Required Minimum Distributions (RMDs) from a traditional IRA. She wants to make an additional IRA withdrawal of $50,000 for a purchase next year. Withdrawing $50,000 either this year or next year would trigger a $937.20 IRMAA surcharge, which would add about 1.87% marginal tax rate to the withdrawal. Instead, if she withdraws $25,000 each this year and next, her MAGI can be kept below the IRMAA threshold and IRMAA can be avoided. In addition, spreading out the withdrawals over two years avoids having $3,925 of income cross from the 22% to 24% income tax brackets, saving an additional $78.50 in taxes. Spreading out the withdrawals over two years is clearly a better strategy.

Example: Concentrating withdrawals
A 75-year-old single taxpayer has a baseline taxable income of $120,000, comprised of Social Security benefits and Required Minimum Distributions (RMDs) from a traditional IRA. She wants to make an additional IRA withdrawal of $30,000 for a purchase next year. Withdrawing $30,000 either this year or next year would trigger a $1,418.40 IRMAA surcharge, which would add about 4.73% marginal tax rate to the withdrawal. But if she instead withdraws $15,000 each this year and next, she will face the same IRMAA surcharge in both years, doubling the marginal tax rate on the withdrawal to 9.46%. Both withdrawals would be entirely in the 24% income tax bracket, so there is no difference in income taxes. Concentrating the withdrawal in a single year is the better strategy.

Example: Traditional or Roth contributions
A 60-year-old married taxpayer is choosing between traditional or Roth contributions. His current marginal tax rate is 24%, and he has a large traditional IRA and expects Required Minimum Distributions (RMDs) of roughly $230,000/year to begin at age 72. The future marginal income tax rate will also be 24%, suggesting that traditional and Roth contributions will be equally valuable. However, this taxpayer will likely already be in the first IRMAA tier, and with additional traditional contributions will risk crossing into the second tier and facing an annual cost increase of $2,836.80. Although it's possible he will stay in the same IRMAA tier regardless of what contributions he makes, there is no offsetting risk for Roth contributions, which are therefore the better choice.

Example: Roth conversions
68-year-old married taxpayers with no baseline taxable income want to make Roth conversions. They expect a marginal tax rate of 24% in four years when RMDs begin. They may face IRMAA after age 72, but can begin by assuming conversions now are unlikely to change their IRMAA tier. Ignoring IRMAA today, they could convert up to $394,900 at a marginal tax rate of 24% or less ($364,200 top of the 24% bracket plus $30,700 standard deduction). However, that amount of taxable income will trigger several IRMAA tiers. Each tier should be evaluated separately. At a minimum, converting up to just under the $194,000 IRMAA tier boundary goes up to the 22% income tax bracket and triggers no IRMAA surcharges, so would be beneficial. Each possible conversion beyond $194,000 must be evaluated separately:


 * Converting an additional $27,450, up to the top of the 22% bracket, generates $6,039 in additional income tax and $1,874.40 of IRMAA surcharges, for a total cost of $7,913.40 and a marginal tax rate of 28.83%.
 * Instead, converting an additional $52,000, up to just under the $246,000 IRMAA tier boundary, generates $11,931 in additional income tax and $1,874.40 of IRMAA surcharges, for a total cost of $13,805.40 and a marginal tax rate of 26.55%.
 * Instead, converting an additional $112,000, up to just under the $306,000 IRMAA tier boundary, generates $26,331 in additional income tax and $4,711.20 of IRMAA surcharges, for a total cost of $31,042.20 and a marginal tax rate of 27.72%.
 * Instead, converting an additional $172,000, up to just under the $366,000 IRMAA tier boundary, generates $40,731 in additional income tax and $7,545.60 of IRMAA surcharges, for a total cost of $48,276.60 and a marginal tax rate of 28.07%.
 * Instead, converting an additional $200,900, up to the top of the 24% income tax bracket, generates $47,667 in additional income tax and $10,382.40 of IRMAA surcharges, for a total cost of $58,049.40 and a marginal tax rate of 28.89%.

In summary, no amount of Roth conversions above $194,000 will incur a marginal tax rate less than or equal to 24%. So, despite having $394,900 "room" to convert up to the top of the 24% bracket, this taxpayer is able to utilize less than half of that room due to IRMAA surcharges. Investors should also note that Roth conversions at age 62 and younger are not subject to IRMAA; Roth conversions starting at age 63 will be included in MAGI used to calculate IRMAA once Medicare starts at age 65.

The above analysis assumed that conversions will not change future IRMAA rates, which may or may not be correct. If this taxpayer expected, with confidence, that future taxable income would fall just above an IRMAA tier threshold, then the future IRMAA surcharge savings should be included in estimates of future marginal tax rates, and conversions today above 24% would be economically beneficial. Unfortunately, predicting future account balances this precisely even four years ahead is difficult, especially if they contain volatile assets like stocks. As an alternative approach, this taxpayer could pick a range of potential future RMDs (say, $200,000-$300,000), look up the rough average IRMAA rate over this range (approximately 5%), and assume this rate is applied uniformly over future income. With an assumed net withdrawal tax rate of 29% (24% income tax + 5% IRMAA), all of the above possible conversions become very slightly economically beneficial, by up to a few percent. In reality, the actual IRMAA rate at withdrawal will either be much larger than 5%, or zero, but this can only be known in hindsight.

As should be apparent, the "spike" or "cliff" behavior of IRMAA can make planning very difficult. Taxpayers who may be affected by IRMAA are advised to make reasonable assumptions, make the easy planning decisions that are very likely to be beneficial, and to not worry too much about getting the close calls exactly right. For close calls, other factors such as whether likely heirs would benefit more from inheriting pre-tax or Roth assets may dominate the decision. In practice, differences in tax rates of a few percent are unlikely to make any meaningful difference in any of these example taxpayers' financial lives.

Another example of a difficult IRMAA planning situation can be found elsewhere on the wiki: Traditional vs. Roth Examples: Worth pushing through the Social Security hump and/or IRMAA cliffs?

Taxation
Medicare premiums, including any IRMAA surcharges, are only tax-deductible in certain situations:


 * Taxpayers who itemize deductions may deduct Medicare premiums on Form 1040 Schedule A along with all other qualifying medical expenses for the tax year. However, this deduction is subject to a 7.5% AGI floor, and many retirees do not itemize their deductions to begin with.
 * Self-employed taxpayers may deduct Medicare premiums above-the-line on Form 1040 Schedule 1 as self-employed health insurance premiums. The deduction is limited to the net business income.

Note that the federal withholding percentage for Social Security payments is applied after the deduction for Medicare premiums, including IRMAA.

Exceptions for IRMAA
The SSA may grant appeals to an IRMAA determination if a taxpayer has a qualifying life-changing event :


 * The death of a spouse
 * Marriage
 * Divorce or annulment of your marriage
 * You or your spouse stops working or reduces the number of hours you work
 * Involuntary loss of income-producing property due to a disaster, disease, fraud, or other circumstances
 * Loss of pension
 * Receipt of a settlement payment from a current or former employer due to the employer’s closure or bankruptcy

Details are provided in Medicare Part B Premium Appeals. Social Security Administration Form SSA-44 is used for life-changing events. In addition, the SSA may also grant IRMAA appeals when a prior tax return is amended, or when an error has been made.

Single-year increases in taxable income not from a qualifying life-changing event are not grounds for an IRMAA appeal. Examples of one-time taxable income not exempt from IRMAA include:


 * Selling appreciated stock or other assets
 * Roth conversions
 * Selling the family home (to the extent the gains are not excluded by the capital gains exclusion of $250,000 for singles or $500,000 for married couples) or rental property
 * Cashing out an annuity or life insurance contract worth more than the cost basis

Taxpayers considering generating taxable income should include any IRMAA surcharges as part of the tax cost of the transaction, albeit two years in the future.