Wait, Why Am I Paying an Additional Medicare Tax?
This is the fourth article in my Medicare series. I appreciate all the positive feedback I’ve received. It’s great to know these articles are helping people make informed choices about Medicare. If you have questions, please feel free to reach out—I’m happy to help.
You may be surprised to learn about the additional monthly premiums (IRMAA) that you may have to pay to the Federal Government for Medicare Part B and Part D if your income in retirement is above a certain level.
Standard Medicare Premium in 2024
For those enrolled in Medicare in 2024, the base premium for Medicare Part B is $174.70 per month. This is what everyone pays to the government, on top of any premiums for additional coverage, like:
A Medicare Supplement plan plus a prescription drug plan, or
A Medicare Advantage plan.
What is IRMAA (Income Related Monthly Adjustment Amount)?
IRMAA is an extra charge added to your Medicare Part B and Part D premiums if your income is above a certain threshold. It’s calculated annually based on income reported two years earlier.
For 2024, the Social Security Administration (SSA) will look at your 2022 tax returns to determine if you owe an IRMAA. If you do, you’ll receive a notice with your updated premium amount.
For example, if you’re single and your modified adjusted gross income (MAGI) is between $103,000 and $129,000, instead of paying $174.70, your monthly premium increases to $244.60. This amount is in addition to any Medicare Supplement or Medicare Advantage or drug plan premiums. Be aware that even if your Modified Adjusted Gross Income (MAGI) exceeds the income limit by just $1, it can push you into the next tax bracket.
Below is the IRMAA table for 2024 for Part B (2025 not yet out):
Can You Avoid Paying IRMAA?
You may be able to reduce your IRMAA by lowering your MAGI (Modified Adjusted Gross Income). Here are a few strategies:
Roth Accounts: Withdrawals from a Roth IRA or Roth 401(k) do not count as income for IRMAA calculations, whereas withdrawals from a traditional 401(k) do. This is one reason why a Roth account can be advantageous.
Reduce Capital Gains- Capital gains count towards MAGI- take withdrawals from mutual funds with an eye towards reducing capital gains. Sell Mutual funds with the highest cost basis.
The taxable portion of Social Security benefits count towards your MAGI. Consider postponing taking Social Security benefits until 70.
Appealing IRMAA: If your income has significantly changed since the SSA’s reference year—perhaps due to retirement—you can appeal the IRMAA decision. Instructions for appeals are available here on the SSA’s website.
Consider discussing these options with your accountant to see if there are tax strategies that could help reduce your IRMAA.
NOT FINANCIAL ADVICE
The information contained in this article is for informational purposes only and shall not be understood or construed as financial advice. I am not an attorney, accountant or financial advisor, nor am I holding myself out to be. I do not accept any fees or commissions from anyone or any financial institution.
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