How Can I Avoid Paying IRMAA?
Individuals who earn more than $91,000 a year ($182,000 for joint filers) and who are in Medicare Part B, Medicare Part D, or both, are required to pay additional premiums. This additional premium is called the Income-Related Monthly Adjusted Amount (IRMAA). Luckily, there are certain legal and tax planning strategies you can use to avoid having to pay this extra amount.
What is IRMAA?
IRMAA is a surcharge that certain high-income people must pay in addition to their Medicare Part B and Part D premiums. The Medicare IRMAA for Part B went into effect in 2007, while the IRMAA for Part D was implemented as part of the Affordable Care Act in 2011. Even if you pay monthly premiums to an insurance company for advantage coverage or prescription drug coverage under Part D, your IRMMA payments will go directly to Medicare.
The Social Security Administration (SSA) determines if you're subject to IRMAA based on the income reported in your tax return from two years ago. For example, if you enroll in Medicare in 2023, your IRMMA surcharge will be based on the income data in your 2021 tax return.
You could be notified by the SSA about an IRMAA at any time throughout the year. If they determine that you must pay an IRMAA for your Medicare premiums, you will receive a predetermination notice in the mail that includes information like:
How the IRMAA was calculated
What to do if the data used to determine the IRMAA is inaccurate
What to do if your income has been reduced or you’ve had a life-changing event
Who Pays IRMAA?
Federally mandated IRMAA surcharges can vary. Some people may pay the surcharge only once, while wealthier individuals will pay IRMAA fees every year. Many one-time income events can trigger IRMAA, such as withdraws from retirement accounts, inheriting an IRA, cashing in select “MEC” life insurance policies, selling stocks, etc.
The amount owed is based on a special modified adjusted gross income (MAGI) calculation, different from that used to calculate income tax.
To oversimplify, the surcharges apply on a sliding scale to single taxpayers earning more than $91,000 MAGI and joint filers earning more than $182,000. The maximum surcharge is assessed on single incomes exceeding $500,000 and combined incomes exceeding $750,000.
Business owners who work while on Medicare, people with substantial pensions, high-net worth individuals, and trust beneficiaries will almost always owe IRMAA. However, people with one-time or occasional spikes in income may be able to “tax plan” the surcharge away.
If I don't want to pay IRMAA, what can I do?
If you receive a notice from the SSA stating that you owe IRMAA, you can submit an appeal. The SSA will provide directions on how to submit an appeal in their “initial determination” notice. If a life-altering event occurs that has a major impact on your income for the year, you can also complete this form.
The best way to reduce or avoid paying IRMAA is to reduce your MAGI. With the help of a qualified tax professional, these strategies may help you reduce your MAGI:
Harvesting tax credits
Making charitable donations, including Qualified Charitable Contributions and Donor-Advised Funds
Advancing depreciation on real estate and business assets
And other tax planning strategies
The professionals at Ohio Tax Advocates are committed to helping you reduce or eliminate IRMAA before you’re charged. People who hire tax advisors rather than merely tax preparers are typically the only ones aware of this fee in time to do something about it. If you are a Medicare Part B or Part D recipient, and are worried about IRMAA, call us today at 614-356-8647 to schedule a consultation.