IRMAA: Not A Friend to High-Income Earners
What is IRMAA?
IRMAA may sound like the name of your friendly neighbor down the street, but IRMAA is neither a person nor, if a person, a friend to high-income earners. IRMAA is an unpleasant surprise for high-income earners who become Medicare Part B and D beneficiaries and learn they must pay higher premiums for these medical benefits based on their income. If you are nearing age 65 you should be alert to these issues.
IRMAA stands for “Income Related Monthly Adjustment Amount”. High-income households pay an extra charge—IRMAA—on top of the standard Medicare premium. IRMAA can apply to Medicare Part B or Medicare Part D premiums. If you fall into one of the high-income categories—more than $97,000 for individuals and $194,000 for couples—the Social Security Administration (SSA) will notify you. The IRMAA notification from SSA might happen when you first apply for Medicare, but it can be triggered at any other time after initial Medicare enrollment if your income exceeds the threshold.
How IRMAA Works
IRMAA is based on your income as reported on your income tax return two years ago. 20 C.F.R. § 418.1135(a),(b). For example, if your income as reported on your tax return from 2021 fell into the high-income category, you would pay IRMAA for 2023 Medicare monthly premiums.
IRMAA gets added on to your premium. For example, in 2023 the Part B premium will be $164.90, but if your IRMAA is $65.90 because you and your spouse filed a joint tax return in 2021 with modified adjusted gross income of greater than $194,000 and less than or equal to $246,000, then your 2023 monthly premium for Medicare Part B will be $230.80 (comprised of $164.90 + $65.90).
IRMAA is based on your Modified Adjusted Gross Income. This means it is based on more than just your salary, including, for example, tax-exempt interest income. 20 C.F.R. § 418.1010.
Here’s a key bad fact: Both you and your spouse must pay IRMAA. In the example above, husband and wife each will pay a Medicare Part B premium of $230.80. IRMAA and its effects are real: a $65.90 increase is really a $131.80 increase to the household bottom line.
And IRMAA also applies to your Part D premium, if you are enrolled in Part D Medicare for prescription drug coverage. Each spouse in a married couple filing jointly with Modified Adjusted Gross Income greater than $194,000 and less than or equal to $246,000 two years ago will pay an extra $12.20 per month on top of their projected Part D premium of $31.50 for 2023.
The IRMAAs for Part B and Part D for 2023 shown at following tables: https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly.
How to Reduce or Eliminate IRMAA if Your Income is Lower Today Than
Two Years Ago
Many people, for various reasons, have lower income today than two years ago. If you are subject to IRMAA and experience a “Life-Changing Event” as defined by the SSA that reduces your income, you can request an IRMAA reduction from the SSA by using a form available on the SSA website, similar to this: https://www.ssa.gov/forms/ssa-44-ext.pdf.
Life-Changing Events for IRMAA reductions include:
- Death of a spouse
- Marriage ending through divorce or annulment
- Termination of employment by individual or spouse, or reduction in hours worked
- Reduction in income due to “loss of income-producing property”
- Reduction or loss of pension income.
20 C.F.R. § 418.1205.
The SSA requires tax returns and qualified life-changing event documentation for IRMAA reductions. If you ask for relief using a projected income, SSA will confirm the projected income when that tax year is officially filed with the IRS. If you end up overpaying Part B or Part D premiums during the IRMAA reduction process, the SSA will issue a refund.
Regulations appear to require that your request to reduce IRMAA due to a Life-Changing Event be made the same year that income reduction caused by the Life-Changing Event occurs, or if in the last three months of the year, by March 31 of the following year. 20 C.F.R. § 418.1310(a)(4). Exceptions may be available for “good cause”.
If you miss the deadline it matters, for example, when a person who is laid off opts to continue coverage through Consolidated Omnibus Reconciliation Act (COBRA) and the issue of Medicare premiums does not come up until the deadline has expired to request an adjustment.
IMPORTANT NOTE: If you are Medicare-eligible and inherit a large IRA, your IRA distributions, which can no longer exceed 10 years under the SECURE Act, may also affect your Part B and D premiums. Be sure to contact Medicare when a “Life-Changing Event” happens such as complete distribution of the IRA.