Why Medicare Surcharges Can Shock Retirees

Last edited Mon Feb 7, 2022, 07:23 PM - Edit history (1)

The topic here is the “Income Related Monthly Adjustment Amount,” or IRMAA. That’s the formal name for the additional premium that some individuals and couples who are enrolled in Medicare pay for their coverage. To be specific: Most beneficiaries in 2022 will pay $170.10 a month for Medicare Part B, which covers doctors’ fees and other expenses. But…if your income on your federal tax return for 2020 (more in a moment) exceeded $91,000 as an individual, or $182,000 as a couple filing jointly, your monthly premium this year likely will be larger than $170.10.

If, for instance, your income in 2020 exceeded the amounts noted above by so much as a penny, your monthly Part B premium jumps almost $70. From that point, the premium continues to climb in line with your income, eventually topping off at almost $580 a month. What’s more, a similar math applies to high-income beneficiaries enrolled in Medicare Part D, which covers prescription drugs; here, too, monthly premiums escalate along with income.

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Why the surprise? Because many retirees aren’t aware these surcharges even exist, or don’t understand how they’re triggered. Again, your income (specifically, your “modified adjusted gross income”) is the key. As such, large—and, frequently, one-time—financial events can push you into surcharge territory. Examples: Did you sell your house or a rental property and end up with a sizable capital gain? Did you withdraw a large sum from your IRA? Are you still working and earning a six-figure salary? Did you convert a large chunk of your traditional IRA to a Roth? Any of these circumstances could inflate your income substantially—and leave you blindsided by IRMAA.

The larger point: For anyone getting ready to enroll in Medicare, as well as current beneficiaries, “IRMAA planning” should be part of your tax planning—anticipating how financial transactions today can affect your taxes tomorrow. The good news: There are ways to get relief from, or lessen the impact of, Medicare surcharges; an online search—“how to avoid IRMAA”—can get people started.

https://www.wsj.com/articles/medicare-shock-retirees-tax-season-11643848093 (subscription)

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Wanted to add that these surcharges can be waived if there was a major life changing event like retiring.