IRMAA (Higher Income) Surcharge
It stands for Income Related Medicare Adjusted Amount and you might think of it as being another government tax for people who do well for themselves financially. Most people pay $148.50 for Medicare Part B (in 2021) with Part A being free to just about everyone. But if your name happens to be Bill Gates or Warren Buffet the government figures being a billionaire you can afford to pay a little more. Even if your name is Walter Schmitt but you earn more than $87,000 as a single filer or $174,000 as a joint filer, then the government wants you to kick in more, too. Below is the chart that shows you how much more.
You will notice that just to confuse us all a little more, the government has broken IRMAA into two separate charges: Part B (medical expenses) and Part D (prescription expenses).
Part D IRMAA: People who pay the usual $148.50 without paying IRMAA charges, pay nothing- at-all to the government for Part D. It seems like a square deal, they get no drug coverage from Medicare but in turn they also pay nothing. But the situation is not quite this lucky for the lucky high dollar earners. They pay this second IRMAA surcharge for Part D as well.
Let’s look at an example: If you are a joint tax filler earning $200,000 that would place you in the center of the first IRMAA payment tier in the chart above. As such, you would pay $207.90 for Part B IRMAA and $12.30 for Part D IRMMA for a total of $220.20.
A question I often get from confused clients is, “Does my paying Part D IRMAA mean I am getting drug coverage?” The answer is unfortunately “no.” Medicare does not provide any direct drug coverage with or without the IRMAA Part D surcharge. They merely make you pay for something you aren’t getting from them. I’m guessing though, it’s not the first time you paid the government for something you didn’t benefit from.
Why, however, the government can’t just lump both IRMAA’s (for Part B and D) together into one IRMAA and charge one combined amount, and in so doing confuse people less, is another government mystery.
How IRMAA is Calculated and Paid
Medicare uses your Modified Adjusted Gross Income (MAGI) currently from your 2019 tax return to calculate your IRMAA charges. At some point, they will make the switch to 2020 tax returns. Each year this then becomes recalculated and your IRMAA surcharges will go up or down accordingly.
In terms of how IRMAA gets paid, first, you will get a letter called an Initial Determination from Medicare (CMS) sometime after you apply for your part B (it could come quickly or a month or two later) informing you that you have been assessed IRMAA. The amount will then be added to the Part B payments that are either taken out of your Social Security benefit or billed to you by Medicare (CMS).
Appealing Your IRMAA Charges
Many times we hear from clients, “It’s not fair. My last year’s tax return showed twice the income I make now since I’ve retired.” Or worse yet, “I sold a property and had a huge capital gain in 2019 as a one-time event, and as a result, my IRMAA charges are through the roof.”
The letter you got assessing your IRMAA is however only an “Initial Determination.” Much of the time when people receive their “Initial determination” they aren’t as happy as say getting a birthday card (the government does not send out birthday cards) but they also know, “Darn it, they got it right.”
But sometimes they don’t get it right. If this is your situation, you can request that Social Security rethink their IRMAA decision concerning you, (called a reconsideration) based on your having a life-changing event that caused a drop in your income since your tax return was filed, or if the information used to assess your IRMAA is now outdated or incorrect. For instance, if you retired recently, which resulted in a significant loss in income, your retirement is considered a life-changing event.
You can best make your case by showing a recently filed tax return, or amended return, showing that your income has gone down since the tax return they used to calculate your IRMAA. To request a new Initial Determination fill out and submit a Medicare IRMAA Life-Changing Event Form (SSA-44). https://www.ssa.gov/forms/ssa-44-ext.pdf
You can also phone Medicare at 1-800-772-1213 to request an appointment with your local office to discuss an IRMAA reconsideration.
Two other very important words I tell my clients are: BE PROACTIVE! Let’s say you happily did make buckets of income in 2019 but then in filing your 2020 return, or down the road with your 2021 return, your income goes from buckets to just bucket. My advice is: Don’t wait until Medicare discovers this change in your return and lowers your IRMAA by themselves. As soon as your new return (with far less income) is filed then call and submit for an IRMAA reconsideration with your filed return in hand.