Who is IRMAA and why does she want you to pay more for Medicare?

Medicare Part A (i.e. inpatient hospital coverage) is premium-free for most people. As of 2020, the base premium for Part B (i.e. outpatient primary care and specialist doctor coverage) is $144.60 per month. 2021 Part B premium has not yet been announced but is expected to be a few dollars more per month. The premium for Part D (i.e. prescription drug coverage) varies based on which plan you choose, if any.

In addition to having to pay the base premium amounts for Parts B and D, you may also have to pay an additional monthly premium surcharge if your reported gross income is above certain thresholds. These surcharges are known as Income-Related Monthly Adjustment Amounts, or IRMAA.

The measure of gross income used for purposes of IRMAA is your Modified Adjusted Gross Income (“MAGI”), which is your tax return’s Adjusted Gross Income PLUS any non-taxable interest you had.

As of 2020, you’ll have to start paying IRMAA surcharges if your MAGI is over $87k if you’re single, or $174k if you’re married and filed a joint return.

The amount of the IRMAA surcharge is tiered based on your MAGI. As of 2020, Part B IRMAA surcharges range from $57.80 to $347.00 per month, per person, and Part D IRMAA surcharges range from $12.20 to $76.40 per month, per person.

The sneaky thing about IRMAA is that there’s a two-year lag between the year of your reported MAGI and the year you have to pay the surcharges, if any. For example, 2020 surcharges are based on 2018 MAGI. Therefore, assuming you’ll start Medicare at age 65, you need to start paying attention to your MAGI in the year you turn 63.

This means there could be some valuable tax-planning opportunities to help you avoid or minimize IRMAA surcharges. As an example, if you are trying to do multiple years of Roth conversions, you may want to front-load them a bit - before turning 63 - as Roth conversions count toward your MAGI. And if you have any deferred compensation arrangements, you may want to try realizing the income before you turn 63, if possible.

For further information about IRMAA and related tax-planning opportunities, check out my recent YouTube video, Understanding Medicare Premium Surcharges.