Medicare IRMAA: How Income Raises Your Part B and Part D Premiums

IRMAA is the extra amount higher-income retirees pay on top of the standard Medicare Part B and Part D premiums. The letters stand for Income-Related Monthly Adjustment Amount, and the mechanics are simpler than the name: once your income crosses certain thresholds, Medicare adds a surcharge to your premiums, and the higher your income, the larger the surcharge. Two features make IRMAA worth understanding in advance rather than discovering by letter. First, it is based on your tax return from two years earlier, so the income that determines this year's premium is already history. Second, it works as a series of cliffs, not a gradual slope — being one dollar over a threshold moves you into the next bracket in full. Both features make IRMAA something you can plan around.

The dollar thresholds and surcharge amounts change every year and are set by the Centers for Medicare & Medicaid Services, so this article keeps the numbers generic and focuses on the mechanics. Confirm the current figures with Medicare and the Social Security Administration, and check your own position with a tax adviser before acting.

Why a letter about 2024 income sets your 2026 premium

IRMAA uses a two-year lookback. The surcharge for a given year is determined by the modified adjusted gross income (MAGI) on the tax return you filed two years before. So the 2026 surcharge is based on your 2024 return, the 2027 surcharge on your 2025 return, and so on. Social Security uses the most recent return the IRS has passed to it, which is generally the one from two years back.

The practical effect is that the income decisions that drive IRMAA are made two years ahead of the bill. A large Roth conversion, a capital gain from selling a property, or a spike in taxable income this year will not touch your premium until two years from now — but it will touch it then. That lag is what turns IRMAA from a surprise into a planning problem, because you can see the cliffs coming.

What counts as income: MAGI, not just AGI

The measure that matters is MAGI, and for IRMAA it is defined narrowly: your adjusted gross income plus any tax-exempt interest. That second part catches people off guard. Interest from municipal bonds is free of federal income tax, but it still counts toward the income that sets your Medicare surcharge. So does the taxable portion of Social Security, withdrawals from traditional retirement accounts, required minimum distributions, capital gains, dividends, and the like.

What does not raise MAGI is money that never enters AGI in the first place. Qualified distributions from a Roth IRA come out tax-free and do not count. A qualified charitable distribution sent straight from an IRA to charity satisfies part or all of your RMD without adding to AGI, which is one of the cleaner ways to keep RMD income from pushing you over an IRMAA line. The distinction between income that lands in MAGI and income that does not is the lever behind almost every IRMAA strategy.

The cliff structure, and why it stings

Most of the tax code phases things in gradually. IRMAA does not. It is built as a set of brackets, and each threshold is a cliff: cross it by a single dollar and the full surcharge for that tier applies for the whole year. There is no easing-in.

Consider the shape of it with round illustrative numbers. Suppose a threshold sits at a MAGI of $X. A retiree at $X minus $100 pays the standard premium. A retiree at $X plus $100 pays the standard premium plus the full first-tier surcharge — potentially over a thousand dollars more across the year, per person. The extra $200 of income triggered a surcharge many times its size. That is the cliff at work, and it is why a modest, avoidable bit of year-end income can be so expensive two years later.

Because the surcharge applies per person, a married couple who both cross a threshold pay it twice. And the surcharge covers both Part B and Part D — the Part D piece is added on top of whatever your drug plan charges.

The married-filing-separately trap

One quirk deserves its own warning. The IRMAA thresholds for people who are married but file separately are far less generous than for those who file jointly. A couple who file separately can find themselves hit with a high surcharge at a much lower income than a jointly-filing couple would face. If you are on Medicare and considering filing separately for some other reason, model the IRMAA cost first — it can swamp the benefit that prompted the idea.

How you actually pay it

For most people, IRMAA is deducted directly from the Social Security benefit, alongside the standard Part B premium. The Part D surcharge is billed separately or deducted, even though you pay your drug plan premium to a private insurer. Social Security notifies you by mail when a surcharge will apply, and the letter explains which year's return was used and how to respond if your circumstances have changed.

When you can appeal: life-changing events

IRMAA's two-year lookback creates an obvious unfairness — your income two years ago may bear no relation to your income now, especially right after retirement. Social Security accounts for this through an appeal for a life-changing event, filed on Form SSA-44.

The recognised events are specific. They include marriage, divorce or annulment, the death of a spouse, and — the one that matters most at retirement — work stoppage or a reduction in work hours. Loss of certain income-producing property and reductions in pension income also qualify. If one of these applies, you can ask Social Security to base your surcharge on your more recent, lower income instead of the two-year-old return, supplying documentation such as a signed statement, a more recent tax return, or proof of the event.

Worth being clear on the boundary: SSA-44 is for a genuine change in circumstances, not simply for having high investment income two years ago that has since dropped. A one-off capital gain is not a life-changing event. But retiring, and the drop in earnings that comes with it, very much is — and many new retirees are entitled to relief in their first Medicare years but never file the form. If a surcharge letter arrives and your income has genuinely fallen for a qualifying reason, appealing is usually worth the paperwork.

Planning around IRMAA

Because the cliffs are visible in advance, IRMAA rewards a bit of forward tax planning. None of the following is a recommendation for your situation — it is education, and the right mix depends on your whole picture — but these are the levers advisers most often use, and they sit alongside the wider ideas in retirement tax strategies and retirement tax planning.

• Watch the threshold near year-end. If a modest amount of extra income would tip you over a cliff, deferring it — or accelerating deductions — can save far more than the income is worth.
• Time Roth conversions deliberately. Converting fills up income now, which can raise IRMAA two years out, but it lowers future RMDs and future MAGI. Converting in lower-income years, and sizing each conversion to stop below a chosen IRMAA line, is a common approach. See the Roth conversion guide.
• Use QCDs to manage RMD income. Once RMDs begin, they can push MAGI up every year for life. Directing some of the RMD to charity through a QCD keeps that amount out of MAGI.
• Mind large one-off events. Selling a home or a highly appreciated asset can spike MAGI into a top tier for a single year. Spreading a sale, harvesting gains in lower-income years, or planning around the two-year lag can soften the hit.
• Think two years ahead of Medicare. The income in the two years before you enrol already sets your first surcharges. Planning ideally starts before age 63, not at 65.

There is a broader point here. IRMAA is one of several reasons that when you take retirement income matters as much as how much — the same theme that runs through sequence of returns risk and the required minimum distribution rules. Managing the shape of your taxable income across the decade, rather than reacting year by year, is what keeps avoidable surcharges off the table.

Frequently asked questions

What income is used to calculate IRMAA?

Your modified adjusted gross income — adjusted gross income plus tax-exempt interest — from the tax return two years earlier. So 2026 surcharges use 2024 income. That includes RMDs, capital gains, dividends, taxable Social Security, and municipal-bond interest, but not qualified Roth withdrawals or amounts sent to charity through a QCD.

Can I get an IRMAA surcharge removed if my income dropped?

If the drop came from a recognised life-changing event — retiring or cutting work hours, marriage, divorce, death of a spouse, or loss of income-producing property — you can appeal on Form SSA-44 and ask Social Security to use your more recent income. A fall in investment income alone does not qualify.

Does IRMAA apply to both Part B and Part D?

Yes. The surcharge is added to your standard Part B premium and, separately, to your Part D drug coverage, on top of whatever your drug plan charges. Both are set by the same income thresholds.

Is IRMAA a one-time charge or does it recur?

It is assessed each year based on that year's applicable return, so it can apply for one year and not the next, or recur for years, depending on your income. Because it recurs, keeping recurring income such as RMDs below a threshold has a compounding benefit over a long retirement.