Will You Be Affected By IRMAA?

If you are unfamiliar with IRMAA, and how it may affect you, it could end up costing you a lot of money. IRMAA is an acronym that stands for Medicare's Income Related Monthly Adjustment Amount. This "adjustment" can cause an increase in your Medicare premiums for Part B and Part D. It is based on your most recent tax return supplied to Medicare by the I.R.S and specifically looks at your Modified Adjusted Gross Income. In most cases this may be a tax return from 2 years ago (or 3 years ago if the return from 2 years ago is not available).  For example, the 2020 Part B and Part D IRMAA is determined based on your 2018 tax return that was filed in 2019. This is important because if you start Medicare this year at age 65, for example, and expect your Medicare Part B premium to be $144.60/month (the base amount for 2020), that amount could be significantly higher if your reported income for 2018 was higher than a certain threshold. Maybe you received a large bonus that year, or took a distribution from a 401k/IRA account that will count as income? You may not expect that income from two years ago would affect your current premiums, but that's why you need to be aware of IRMAA before you start Medicare. It should also be noted that this is not just a one-time adjustment. IRMAA is calculated every year so you may have to pay the adjustment one year but not the next if your income falls below the threshold.

While IRMAA ends up affecting less than 5% of Medicare recipients, those it does affect are often caught by surprise. In general, Medicare pays ~75% of the cost of the Part B premiums, and individuals pay the other 25% ($144.60 in 2020). If your reported income for the relevant reporting period is higher than the Medicare adjustment scale thresholds, you may end up paying anywhere from 35% to 80% of the total rather than the 25% base amount. Here are the 2020 thresholds for IRMAA (from www.medicare.gov):

Medicare Part D is also affected by IRMAA. Part D premiums are often paid to your selected insurance company, and any additional premium amounts based on IRMAA is applied in addition to your regular premium.
Here are the 2020 IRMAA thresholds for Medicare Part D (from www.medicare.gov):

If you feel that there may be special circumstances that caused to you to be affected by IRMAA, but that are no longer present, you do have the right to appeal the determination, including asking that a more recent tax return be used. For example, in the determining year your income may have been affected by a life changing event such as marriage, divorce, being widowed, severance pay from a work stoppage, etc. If this is the case, you can contact the Social Security Administration (S.S.A.) to appeal the IRMAA determination. You will need to have appropriate documentation to prove your case, and there is no guarantee that the S.S.A. will reverse the determination, but it may be worth the effort if they do.

Beware IRMAA so that you are not caught by surprise - now, or in the future!

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