Skip to main content

How to Avoid IRMAA Brackets: Medicare and Social Security Surcharges

More and more retirees who are enrolled in Medicare are finding out the hard way that their income is leading to much higher premiums and much lower Social Security benefits.

They have reached this little unknown tax in retirement called IRMAA and now they want to know how to avoid it.

Thankfully, avoiding IRMAA is not an overly complex or even strenuous process, but the simplest way to learn to avoid IRMAA is to understand what it is, who it is for and how someone reaches it in the first place.

After this point avoiding IRMAA is extremely simple in theory, but as you will see extremely difficult to do under current financial planning mantras.

What is IRMAA

IRMAA, which is short for Medicare’s Income Related Monthly Adjustment Amount, is, simply, a tax on income through that federal government program.

The Federal Code of Regulations defines IRMAA more eloquently as it states that it is:

“An amount that you will pay in addition to the Medicare Part B and D standard monthly premium plus any applicable increase in that premium for your Medicare Part B and Part D coverage when your modified adjusted gross income is above a certain threshold”

Basically, the more money you have that the Internal Revenue Service can see and tax the more you will pay for your Medicare coverage after certain thresholds.

Who is IRMAA for

This should not come as a surprise as IRMAA only impacts those who are enrolled into Medicare, but in order to be impacted by IRMAA you must be enrolled specific types of Medicare coverage. If you are enrolled into Medicare Part B or have a Medicare Advantage Plan or/and a prescription drug plan, then you can be subject to IRMAA if your income is too high in a given year.

Medicare’s IRMAA is not for subject to Medicare’s Part A coverage or even Supplemental Coverage (Medigap Plans).

According to Social Security’s Program Operations Manual System (POMs) IRMAA is for Medicare beneficiaries enrolled in:

  • Medicare Part B,
  • Medicare Part B and a Medicare Advantage Plan (MA),
  • Medicare Part B and a Medicare Advantage Plan with prescription drug coverage (MA-PD),
  •  Medicare Part B and a Medicare prescription drug plan (PDP), or
  • A Medicare prescription drug plan (PD) AND
  • Have modified adjusted gross income (MAGI) above certain thresholds.

What is the process of determining who reaches IRMAA

Every year, about 2 months prior to the upcoming new year, the Social Security Administration will send your Social Security Number as well as a request of your income information from the IRS to determine if you reached IRMAA.

The IRS, once the request from the SSA is received, will look at your tax-return from the prior 2 years. If your income has reached an IRMAA threshold the IRS will send back that information along with your SSN. If you have not reached an IRMAA threshold the IRS will send back only your SSN to the SSA.

Once the SSA receives income information back from the IRS they will mail out notifications as soon as possible.
The notifications will inform the Medicare beneficiary that the decision is still subject to review and can be reversed by “qualifying circumstances”, if provided.

At this point anyone who has received this notification has 60 days from the received date to file an appeal to contest the ruling. If not appeal is made there will be at least 2 more notifications explaining what will happen in terms of higher Medicare premiums and lower Social Security benefits.

For those who are new to Medicare in a given year the process is similar, with the exception that the SSA, once you apply for benefits for the first time the SSA will request your income information from the IRS.

  • This process includes every single person who is enrolled into Medicare with the exception of those are receiving:
  • Financial help to afford their Medicare costs in any.
  • Supplementary Security Income (SSI).

An example of the process for those already enrolled into Medicare:

In 2022, with the upcoming year of 2023 the SSA will, at the end of October, send your Social Security Number to the IRS electronically and request your income information.

The IRS, since you have not submitted your 2022 tax-return yet, will look at your tax-return from 2021 to see if you have in fact reached an IRMAA threshold.

If you did reach a threshold the IRS will send back that income information along with your SSN. If you did not reach a threshold only your SSN will be sent back.


IRMAA Downloadable Reports

An example for those newly enrolling into Medicare during the year:

The year is 2022 and you are enrolling into Medicare for the first time that year. Once your request to enroll is received by the SSA they will contact the IRS by sending them your SSN while asking to know if your income has reached an IRMAA threshold.

By procedure the IRS will look at you tax-return from 2 years prior. If you did reach an IRMAA threshold the IRS will send back to the SSA your SSN and your income information. If you did not reach an IRMAA threshold the IRS will send back only your SSN.

For those who are notified that they have reached an IRMAA threshold the process of filing for an Appeal can be found here.

For those who are new to Medicare, if they reach IRMAA should always appeal. For those who have been enrolled into Medicare for a few years or longer it is highly recommended that you meet with a Certified IRMAA Planner before filing any appeal of IRMAA.

What is income for IRMAA

The key to IRMAA is income and according to the Program Operations Manual System (POMs) of Social Security income for IRMAA is defined as your modified adjusted gross income or MAGI.

Social Security goes defines MAGI as your “adjusted gross income (AGI) plus any tax-exempt interest” you have or the amounts listed on “lines 2a and 11 of the 2021(2) IRS form 1040”.

Some examples of income used from IRMAA are:

Taxable Social Security benefits, Wages, Interest, Capital Gains, Pension and Rental Income, Dividends and any distribution from any tax-deferred investment like a Traditional 401(k), IRA or 403(b).

How much income is too much income?

IRMAA is not just a one and done when it comes to the to how much income is too much as there are multiple thresholds with corresponding surcharges for income.

In 2023 the IRMAA thresholds and surcharges on a plan premium, according to are:

Individual MAGICouple MAGIPart BPart D (per/mo)
< $97,000< $194,000$164.90Premium (varies)
$97,000 - $123,000
$194,000 - $246,000$230.80Premium + $12.40
$123,000 - $153,000$246,000 - $306,000$329.70Premium + $32.10
$153,000 - $183,000$306,000 - $366,000$428.60Premium + $51.70
$183,000 - $500000$366,000 - $750,000$527.50Premium + $71.30
>$500,000 >$750,000$560.50Premium + $77.90

How to Avoid Surcharges

Now that you know what the process is when it comes to how the Social Security Administration determines who will be in IRMAA as well as what it takes on your end in terms of income to reach IRMAA, avoiding it, at least on paper, may be a lot easier than you think.

The simplest way to avoid IRMAA is by having income that the IRS does not recognize at all.

This can be accomplished by instead of investing into and having assets in financial vehicles like Traditional 401(k)’s and IRA’s you use assets such as:

  • A Roth conversion to Roth Accounts like 401(k)’s, IRA’s and 403(b)’s. (Please contact your financial advisor about Roth conversions)
  • Life Insurance that provides a cash value.
  • Health Savings Accounts (HSA’s).
  • 401(h) Plans
  • Non-Qualified Annuities
  • Home Equity

The harsh reality is that assets that are considered to be tax-deferred like Traditional 401(k)’s, IRA’s and 403(b)’s will be used against their owners in terms of Medicare.

The reason is that any distribution from a tax-deferred account is considered to be a taxable event. Not only are any distributions taxable that distribution will count as income towards IRMAA as well as income towards the taxation of Social Security benefits.

Once you Social Security benefit becomes taxable that too will also count towards IRMAA.

How that tax-deferred Traditional 401(k) works against you:
1. You invest in a Traditional 401(k) today because you apparently get free money from your employer as well as a tax break today.
2. Your contributions and that employer match grow over time and you don’t have to pay tax on that growth
3. At age 72 you are required by law to make a distribution (RMD) out of any tax-deferred investments you have
4. Your RMD counts as taxable income and is then added to half of your Social Security benefit. If that amount is greater than $34,000 then 85% of your Social Security benefit becomes taxable
5. Your taxable income is now that RMD and 85% of your Social Security benefit which also counts towards IRMAA
6. Finally, as you age your Social Security benefit will grow due to the cost of living adjustment while your RMD’s get larger as you distribute more income by law.

You will eventually reach IRMAA if you have tax-deferred assets

The reason why Roth Accounts and Life Insurance work in helping you avoid IRMAA is because you are paying tax today on the money going into them. Later when you want to access the money there are no taxes to paid as the IRS never recognizes those distributions.

Due to this your Social Security benefit NEVER becomes taxable, if you planned accordingly, and with that you will NEVER reach IRMAA.

Should You Appeal IRMAA?

Should you or should you not appeal IRMAA is all based on your own personal situation. For many who are new to Medicare the answer will be a resounding yes you should, but for those already enrolled into Medicare that answer may be a very hard no.

According to Social Security there are few reasons to appeal an IRMAA decision which are:

  • You believe the wrong tax-return was used. The IRS provided a tax return from 3 years prior instead of using the latest
  • You can produce a more up to date tax return that may have been amended or corrected.
  • You have experienced a qualifying life changing event, which are:
    • Tax status change
      • Married, Divorced, Widowed or Annulment
    • Work stoppage or reduction
      • You retired from your employment
    • Loss of income producing property
      • Any real or personal property that generates income which lost due to circumstances out of your control.
    • Reduction or Loss of Pension Income
      • Receiving a pension from an employer that is going to end
    • Employer Settlement Payment
      • Receiving a pension or payout that will abruptly stop due to employer no longer being able to fund it.


IRMAA Downloadable Reports

Streamlining the Medicare Surcharge Bracket Calculation Process.

Our Healthcare Retirement Planner software is designed to streamline the retirement planning process for financial professionals. By providing an efficient way to calculate IRMAA costs, our tool helps you save time and focus on other aspects of your clients’ retirement plans.

  • Faster calculations: Our software quickly calculates IRMAA costs based on your client’s income and tax filing status, eliminating manual calculations and potential errors.
  • User-friendly interface: The intuitive design of our platform makes it easy for financial professionals to input data and generate results with minimal effort.
  • Data integration: Seamlessly integrate our calculator into your existing financial planning tools or CRM systems for a more streamlined workflow.
  • Easy to Understand Reports: Export reports to easily share with your clients
  • Tax and Surcharge Modeling: see how different types of income affects both taxes and your surcharges.

We Make it Easier to plan for Surcharges

In addition to simplifying the calculation process, using our Healthcare Retirement Planner can also help improve communication between you and your clients. With clear visuals that illustrate how IRMAA costs impact their overall retirement plan, you can effectively convey complex information in an easily digestible format. This enables clients to make informed decisions about their healthcare expenses during retirement while ensuring they are prepared for any potential changes in Medicare premiums due to income fluctuations. To learn more about how our software can benefit both you as a financial professional and your clients’ retirement planning experience, visit the features page. Streamlining retirement planning processes can help financial professionals save time and resources, allowing them to focus on other areas of their clients’ needs. Automated calculation of IRMAA costs is the next step in streamlining this process even further.

  • Ability to Run multiple comparison reports
  • Easy to Understand Overview
  • Quick IRMAA Indicator
  • SimpleTax and Surcharge Display
  • Detailed year by year reporting of income and expenses

Author: Mark Annese

Mark Has been working in the Medicare and IRMAA space for the past 8+ years. He is the architect of the leading Social Security and Medicare IRMAA software. He is also the Co-Founder of IRMAA Certified Planner and Healthcare Retirement Planner.