What Income is Considered for IRMAA

In retirement when it comes to your health coverage there is only Medicare and thankfully, this
coverage thru Medicare can be fantastic, but it does all depend on you, your needs and your selections.

Medicare is, simply, your health insurance in retirement and when you retire you will have two choices as to how you want your insurance to be:

• Original Medicare
• Medicare Advantage Plan

Please keep in mind that both can be fantastic, but only one can provide nationwide coverage at almost every hospital in the country with little to no out-of-pocket costs while the other is the only one that can provide coverage for things like dental, vision, hearing and podiatry.

• Original Medicare consists of Medicare Parts A and B with a stand-alone Part D (drug coverage) and a Medicare Supplemental Plan (Medigap). Under Original Medicare with a Part D and Medicare Supplemental Plan G policy (Medigap) if you are admitted as an inpatient to a Medicare recognized facility for a medical need ALL costs for care, with the exception of the Part B Deductible, are covered. With Original Medicare with a Supplemental Plan (Medigap) you can be anywhere in the country and if the healthcare provider accepts Medicare you have coverage.
• Medicare Advantage Plans work slightly different as these plans were created to be competitors to Original Medicare so retirees could have options in terms of their health coverage. Medicare Advantage Plans, which are regulated by the Centers for Medicare Services (CMS), must provide the exact same coverage of Medicare Part A and B and can also provide insurance for things like dental, vision.

The biggest separator between Medicare Advantage Plans and Original Medicare is the fact that Medicare Advantage Plans work within a network of healthcare providers. In order for care to be fully covered you will have to access healthcare providers that have a contract with the Medicare Advantage Plan you selected.

Unfortunately, whichever option you choose, Original Medicare or Medicare Advantage, there will be costs, have it be premiums, co-pays, deductibles and/or MOOPs (maximin-out-of-pocket costs for Medicare Advantage Plans).

On top of these costs that you will have to negotiate and pay for, there is also Medicare’s Income Related Monthly Adjustment Amount (IRMAA) that may just increase the price of coverage even more.

Medicare’s Income Related Monthly Adjustment Amount or IRMAA is simply a tax through Medicare for those who happen to generate too much income while enrolled into the program. According to the Code of Federal Regulations, IRMAA is “an amount that you will pay in addition to the Medicare Part B and Part D standard monthly premium when your modified adjusted gross income is above certain thresholds”.

Ultimately, if your income is above certain thresholds the higher your Medicare Part B and Part D premiums will be. What are the Thresholds for the Income Related Monthly Adjustment Amount? Again, the IRMAA surcharges are based on your income and the higher your income the larger the surcharge. In 2023 the IRMAA Thresholds, according to the Centers for Medicare Services, are dividend into five income brackets after the initial Part B and Part D costs which are: Individual MAGI Couples MAGI Part B Part D

According to the Program Operations Manual system (POMs) of Social Security IRMAA is determined by using “your tax filing status and modified adjusted gross income”. The taxing filing status is “from two years prior to the year for which the premium is being determined, but not more than three years prior”.

This means that when you inform the SSA that will be enrolling into Medicare or for those who are already in Medicare the SSA will send your Social Security Number (SSN) to the IRS. If the IRS determines that your MAGI has reached at least the 1 st IRMAA Threshold your SSN and MAGI will be sent back to the SSA. At this point the SSA will make a determination on exactly where your MAGI is in terms of the Thresholds for IRMAA and will then notify you through the mail on what your total IRMAA surcharges will be for the year.

You are retiring from work and will be enrolling into Medicare in June of 2023.

When you notify the Social Security Administration they will immediately contact the IRS to see if your MAGI from 2021 exceeds at least the 1 st IRMAA Threshold. If your MAGI from 2021 does in fact exceed that 1 st IRMAA threshold the IRS will send back your MAGI information long with your SSN. At this point the SSA will determine exactly how much you owe in surcharges and will send you a New Initial Determination Notification.

For those who are already enrolled into Medicare the process of determining IRMAA is exactly the same as it is for new enrollees, the only difference is that the Social Security Administration contacts the IRS every October and sends out notifications typically in November.

• Please note:At the time of this writing, the Social Security Administration can in fact use the income that you
  earned before being enrolled into Medicare.
• Because of this the income you earned while working and while you were not enrolled
  into Medicare can be included into your MAGI for determining IRMAA.
• If you file an appeal of IRMAA based on your income you are actually stating to the Social Security Administration that the MAGI information provided by the IRS, which you gave to the IRS, is not factual.

When it comes to income for IRMAA it is all about MAGI or modified-adjusted-gross-income.
MAGI, according to the Program Operations Manual system (POMs) of Social Security, just happens to be your “adjusted gross income (AGI) plus tax-exempt interest income or everything on lines 2a and 11 of the Internal Revenue Service (IRS) tax filing form 1040”.

Some examples of income that is included in your MAGI which will be used for IRMAA are:
Wages Social Security Traditional 401(k) distributions
Interest Pension Income Traditional IRA distributions
Capital Gains Rental Income Traditional 403(b) distributions
Dividends Tips Tax-Deferred Annuity distributions

To determine if you will be reaching IRMAA in 2023 simply look at your tax return from 2021 and then add lines 2a and 11. If they both total over $97,000. for individuals or $194,000.00 for couples filling jointly you will know if you are going to be in IRMAA.

Moving forward, as the IRS 1040 may change, you want to, when it comes to IRMAA, always add the box labeled Tax Exempt Interest with the box labeled Adjusted Gross Income. Your Traditional 401(k) will lead to 4 different taxes in retirement.

Unfortunately, with how the federal government regulations and laws have been written for those who have assets within a tax-deferred investment like a Traditional 401(k) or IRA will see an increase in taxes while they are retired.

Here is a breakdown of the ways that you will be taxed in retirement:
Tax 1: At age 72 you will be required to make minimum distribution (RMD) from any Tax-Deferred
Investment like a Traditional 401(k) that you may have.

This RMD will be taxed as ordinary income at the current year’s tax rate.
Tax 2: Your RMD will then be added to half of your Social Security benefit and if the combined amount exceeds more than $34,000.00 then 85% of your Social Security benefit will be taxed at your ordinary tax rate.

Tax 3: The taxable portion of your Social Security benefit (85%) will then be added back to your RMD as well as any other visible income you may have to determine your MAGI. If your MAGI exceeds at least the 1st IRMAA Threshold your Medicare Part B and Part D premiums will increase by the determined surcharge amount.

Tax 4: Under federal law anyone receiving Social Security benefits while enrolled into Medicare must have their Medicare Part B and any IRMAA surcharges automatically paid for by their Social Security benefit.

If you do reach IRMAA then not only will your Medicare premiums increase, but your Social Security benefit will decreased by that amount too.

If you are in or plan to be in retirement there are 4 specific federal laws that you should be aware,
before making any decisions when it comes to your income and they are:
1. You must accept Medicare when eligible and no longer covered by creditable health insurance
through employer to receive your Social Security benefit
2. Medicare costs are based on the amount of income you generate through IRMAA. The more
income you have the higher your Medicare Part B and D premiums will be
3. Income for IRMAA is practically everything in your savings. The only financial instruments that
are not included in IRMAA are Roth Accounts, Life Insurance Cash Value, Home Equity and
Health Savings Accounts (HSA’s) .
4. The bulk of your Medicare costs will reduce your Social Security benefit.

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