You already know that Medicare premiums are not set in stone. Part B and Part D premiums fluctuate every year based on healthcare costs and the rate of inflation. But did you know that some Medicare beneficiaries also pay higher than standard premiums based on the income shown on their tax returns? These additional premiums are known as IRMAA surcharges. Even if you don’t pay a surcharge now, if you have an increase in your income, you may have to pay one in the future.
How IRMAA is Calculated
IRMAA (Income Related Monthly Adjustment Amount) surcharges apply whether you have Original Medicare or a Medicare Advantage plan. IRMAA is calculated every year based on your tax returns, which means your IRMAA status can change from year to year if your income fluctuates. Surcharges are calculated on a sliding scale with five different income brackets. IRMAA surcharges are adjusted annually for inflation.
The Social Security Administration (SSA) determines who pays an IRMAA based on your reported income from two years prior. This means your 2022 tax returns were used to determine if you would pay a surcharge in 2024. Because of this two year delay, an IRMAA surcharge could come as an unexpected surprise.
There are several common reasons why Medicare beneficiaries experience a surcharge:
- Converting Roth IRA’s: A one-time increase in income can come from converting Roth IRA’s. This extra income could trigger a surcharge.
- Required Minimum Distributions (RMD’s): You are required to withdraw a certain percentage from your tax deferred retirement accounts each year when you reach age 73. This additional income could push you into a higher income bracket.
- Death of a Spouse: If the surviving spouse is entitled to the full pension of the deceased, the increase to the survivor’s income could result in a surcharge.
If You Have to Pay a Surcharge
If SSA determines you must pay an IRMAA surcharge, you will receive notification in the mail which will explain the reason for the increase and provide your new premium amount. This is known as your initial determination.
The Part B surcharge is added on to the standard premium set by the government ($174.70 in 2024), and the total amount is paid to the government. For Part D, the premium varies based on the plan you select. You pay the Part D premium to your insurance carrier and the extra amount for IRMAA to the government. If you pay a surcharge, you will be notified by SSA at the end of every year what your premium will be for the following year.
How to Challenge a Surcharge
If you receive notification of a surcharge and you disagree with the determination, your notice will include information regarding your appeal rights. You can file a request for a redetermination within 60 days of receipt of your notification. You may want to consider requesting a redetermination if:
- You disagree with the information the IRS provided to SSA, or you have an amended tax return or corrected tax information for the tax year being used.
- A life-changing event has affected your income since your tax returns were filed. These events include:
- Marriage, divorce, or death of a spouse
- Retirement, work reduction or stoppage
- Loss of income-producing property
- Loss of pension income
- Employer settlement payment
For a life changing event you must submit the required form and supporting documents to SSA by mail or fax, or you call 1-800-772-1213 to schedule an in person interview.
Consult with your retirement planner or tax advisor on strategies for avoiding IRMAA surcharges whenever possible. Even if you have to pay a surcharge one year, if your income drops below the threshold the following year, the surcharge will go away.
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