In 2024 the Medicare Board of Trustees is projecting that over 7.5 million retirees will be in IRMAA, and it will cost them an extra $23.4 billion, but, exactly, what is IRMAA?
What is IRMAA?
IRMAA is an acronym that stands for Medicare’s Income Related Monthly Adjustment Amount.
The Medicare Handbook defines IRMAA as “an extra charge to your premium” if you are earning too much income.
Ultimately, IRMAA is a tax on your income through Medicare, but you have to be earning a certain amount of income beforehand to qualify for it.
Who is IRMAA for?
According to Social Security.gov, which is responsible for placing people in IRMAA and collecting the surcharges, IRMAA is for:
Medicare beneficiaries that “have modified adjusted gross income (MAGI) above the threshold for their tax filing status pay an IRMAA in addition to the monthly premium.”
These Medicare beneficiaries that are eligible for IRMAA must be in either or:
- Medicare Part B.
- Medicare Part D.
- Medicare Advantage Plan with or without prescription drug coverage.
- They also must not be receiving financial assistance in meeting any of the premiums too.
When did IRMAA start?
IRMAA was established in 2003 with Congress passing the Medicare Modernization Act.
It did not take effect until 2007.
How do you qualify for IRMAA?
You qualify for IRMAA by your modified adjusted gross income or MAGI. The greater your MAGI the greater your possibility of not only reaching it, but also possibly finding yourself in a higher surcharge bracket.
There are 5 different IRMAA thresholds that increase by income which in 2024 are:
| Individual MAGI | Couple MAGI | Part B (monthly) | Part D (monthly) |
|---|---|---|---|
| <$103,000 | <$206,000 | $174.70 | Premiums (varies) |
| $103,000 - $129,000 | $206,000 - $258,000 | $244.60 | Premium + $12.90 |
| $129,000 - $161,000 | $258,000 - $322,000 | $394.40 | Premium + $33.30 |
| $161,000 - $193,000 | $322,000 - $386,000 | $454.20 | Premium + $53.80 |
| $193,000 to $500,000 | $386,000 to $750,000 | $559.00 | Premium + $74.20 |
| >$500,000 | >$750,000 | $594.00 | Premium + $81.00 |
Which Tax Return does Social Security use?
The Social Security Administration will always ask, electronically, the Internal Revenue Services (IRS) for the MAGI amounts of all Medicare beneficiaries who are not receiving financial help in either October or November of the current year.
Because the tax year is not complete the IRS will use the previous year’s tax return.
The Steps of the IRMAA determination process:
- Step 1: The Centers for Medicare Services (CMS) around the end of October will create the IRAA Thresholds for 2024.
- Step 2: CMS will then notify the Social Security Administration (SSA) to ask the to determine who will be in IRMAA for 2024.
- Step 3: The SSA will, electronically, send the Social Security Numbers (SSN) of every eligible Medicare beneficiary to the Internal Revenue Service (IRS). They will request the MAGI amounts for those who are over at least the initial IRMAA Threshold.
- Step 4: The IRS will electronically send back both the MAGI data and the SSN numbers of those who are above the initial threshold.
- Step 5: The SSA will then determine which Threshold a person may be in and then notify them through the mail.
Because the IRMAA determination process begins and ends in 2023 for 2024 the tax return that the IRS must use will be from 2022.
Note:
– If the IRS can NOT find a tax return for you from the previous year, they can, by law, use your tax return from 2 years ago, which in 2023 will be the tax return from 2021.
– If the IRS can NOT find your tax return from either the previous year or from 2 years prior you will automatically be in the highest IRMAA Threshold regardless of how much your income is.
Medicare beneficiaries who are receiving financial support to meet their Medicare premiums are NEVER subject to IRMAA.
What does MAGI consist of?
MAGI, unfortunately consists of many types of income which includes:
| Taxable Social Security benefits | Traditional 401(k) Withdrawals |
| Wages | Traditional IRA Withdrawals |
| Pension & Rental Income | Traditional 403(b) Withdrawals |
| Capital Gains | Qualified Annuities |
| Dividends | Interest |
For a comprehensive list on what counts as Income for IRMAA please click here.
What does not count towards MAGI?
The list of what does not count towards IRMAA is as short as what counts as IRMAA income is long and currently there are only few sources of revenue that you can use in retirement which include:
- Roth Accounts (Employer or Individual) – distributions from a Roth account after the age of 59 ½ years of age and after a 5 year investment are tax-free.
- Life Insurance – the Cash Value of the policy if the revenue from the Cash Value is a loan.
- Non-Qualified Annuities – portions of the income from this type of investment may produce a “tax-exclusion” which is not taxable.
- The “tax-exclusion” of Annuities has many factors and we recommend you meet with an IRMAA Certified Planner to discuss them.
- Health Savings Accounts (HSA’s) – qualified distributions from an HSA are never taxable.
- 401(h) Plans – these plans are similar to a Health Savings Account and are for business.
- Loans from your primary residency – yes, a Reverse Mortgage may be a great idea.
Conclusion to What is IRMAA?
The one thing that you can remember from this article – IRMAA is a tax on your income through Medicare.
This tax generates revenue for Congress. It raises your Medicare premiums. Lowers your Social Security benefits.
You pay for IRMAA through your Social Security benefit.
And by the way, thanks to IRMAA Social Security will never go broke. If Congress needs more revenue all the politicians need to do is change this tax.
