What Is IRMAA and Does It Apply to Me?

What IRMAA Means

IRMAA stands for income-related monthly adjustment amount. According to the Social Security Administration, the law requires an adjustment to your monthly Medicare Part B premium and your Medicare prescription drug coverage premium if you have a higher income. In other words, most people pay the standard premium, while higher-income beneficiaries pay the standard amount plus an additional amount. Illinois residents are covered by the same federal rules as everyone else.

It helps to know the background. For most beneficiaries, Social Security explains, the government pays about 75% of the Part B premium and the beneficiary pays the remaining 25%. For higher-income beneficiaries, the beneficiary's share rises. Depending on what you report to the IRS, monthly Part B premiums equal 35%, 50%, 65%, 80%, or 85% of the total cost.

How the Decision Is Made

Social Security uses the most recent federal tax return that the IRS provides to it. The calculation is based on your modified adjusted gross income, often shortened to MAGI. Social Security describes MAGI as your adjusted gross income plus tax-exempt interest income. A sliding scale then determines whether an adjustment applies and how large it is.

A few practical points follow from that:

• The income that counts is generally from a tax return filed a couple of years earlier, not your current-year income.
• The limits differ depending on your tax filing status, such as married filing jointly or another status.
• If your income is not above the limits, Social Security says this law does not apply to you.
• If you have both Part B and drug coverage, you pay an adjustment on each. If you have only one, you pay it only on the benefit you have.

If an adjustment applies, Social Security sends a letter with the premium amount and the reason for the determination.

For the drug coverage adjustment, Social Security notes that the additional amount is tied to a base beneficiary premium, not to your own plan's premium. It is deducted from your monthly Social Security payment regardless of how you usually pay your plan premium. If the amount is greater than your monthly payment, or you do not receive monthly payments, you receive a separate bill from another federal agency, which may be the Centers for Medicare & Medicaid Services or the Railroad Retirement Board.

When Your Income Has Gone Down

Because the decision relies on an older tax return, your situation may have changed since then. Social Security says you can contact it to explain new information if your income has dropped. It may make a new decision for reasons such as:

• You married or divorced, or your spouse died.
• You or your spouse stopped working or reduced work hours.
• You or your spouse lost income-producing property because of a disaster or other event beyond your control.
• An employer's pension plan was ended, terminated, or reorganized.
• You or your spouse received a settlement from an employer or former employer because of a closure, bankruptcy, or reorganization.

Documentation is required, such as a letter from an employer about retirement or a death certificate. Social Security points people to a form for reporting a major life-changing event. If you amended your tax return and it changes the income counted, let Social Security know and be ready to provide the amended return and the IRS acknowledgment.

You have the right to appeal the decision. Social Security says the fastest way is online, and that you can also request an appeal in writing or through a local office. If the dispute is about the income amount the IRS reported, you generally need to correct that information with the IRS.

Planning Ahead

If you are approaching 65 and expect higher income in your first Medicare years, such as from a large retirement account withdrawal or a property sale, it may be worth asking a tax professional how that income interacts with premiums. For official details about your own situation, Social Security and Medicare.gov are the authoritative sources.

This guide is educational and is not an offer of insurance.