Here’s a vexing story about IRMAA that is a cautionary tale for everyone approaching their own retirement. Since we each only really retire once, we never get very good at it. So one person’s experience navigating the transition can be useful for others.
Explanation of IRMAA for those who don't know what it is and how it works ...
IRMAA (Income-Related Monthly Adjustment Amount) is a special tax on Medicare for folks who have incomes at and above, say, white collar upper middle class. Basically it’s a way for the Feds to charge a higher premium for your Part B and Part D coverage based on your ability to pay a higher premium. The more you make, the higher the IRMAA top-up premium. There are 6 premium “buckets” from “no extra premium” to “lots of extra premium”. And each bucket has an applicable taxable income range that also depends on whether you’re single or married filing jointly. Ok, so a progressive tax and a Progressive idea. No complaints here; just a little good-natured grumbling from me despite paying a bunch extra.
They figure your IRMAA premiums for the entire calendar year based on your tax return for 2 years ago. So 2026 premiums being decided now in late 2025 are based on 2024’s tax return that you filed in early 2025. Which works fine if your income is stable year to year, or at least stays within the fairly wide range of the same bucket each year.
The idea is actually that your 2026 premiums should reflect your 2026 earnings, but they’ll use 2024 as a proxy, because that’s the latest income records they have access to. There’s a form you can file to tell Medicare / SSA that your income has changed a bunch, so the two-years-ago method gives a wrong result in your personal case. This is very commonly used in the year you retire and/or the one just after as your W-2 and hence taxable income craters as it typically does for most workers.
With the form, instead you tell them what you estimate your e.g. 2026 income will be and they take your word for it. At least until a couple years later when you file your 2026 tax return and then they cross check whether your estimate was accurate or not. If you estimated low, you now own them the difference between the IRMAA you did pay (maybe even zero) and the larger IRMAA you should have paid. Fair enough, if a tad inconvenient.
Now comes the vexing tale.
Well, I retired towards the end of 2023. My 2021, 2022, and part-year 2023 taxable income (mostly W2) and married status put me in a high IRMAA bracket for IRMAA years 2023, 2024, and 2025 respectively. But my W2 was going to be zero in 2024 & subsequent. I’d have some taxable income from investments and social security, but not enough to trigger IRMAA. Or if any, it’d be the lowest bucket and only a smidgen of extra premium.
So I filed the form predicting 2024’s taxable income to be below the IRMAA threshold for married folks, they believed me, and they charged me no IRMAA in 2024. So far so good.
But… [cue ominous music]
In 2024 my former employer paid out a bunch of back wages due to a court case finally wrapping up. And at year end I decided to take a distribution from my IRA to take advantage of my semi-low income tax bracket before RMDs start in a few years. Both of which bumped my taxable income. Oops. And between Jan & Dec I left my wife and got divorced, so I dropped from the higher threshold income buckets for married filing jointly to the much lower threshold income buckets for filing singly. And thereby catapulted myself from my planned-for zero IRMAA bucket into the highest IRMAA bucket. Oops^2.
I knew they’d almost certainly eventually figure out this discrepancy, and “eventually” is this month. I just got a snail mail from SSA. “You owe us a few thousand dollars. You can pay us now, or we’ll confiscate all your SS benefits until we’ve gotten back what you owe.”
Oops.
That would really suck to have that happen to somebody who needed that cash and/or cash flow. To be sure, people paying any IRMAA are fairly comfortable on an absolute scale. But it doesn’t matter how big your income is, there are people making that income and still living hand to mouth because they can’t stop spending everything they make on monthly payments for stuff they already bought.
Don’t let that happen to you. “That” being either “Well-off and hand-to-mouth”, or “Overfile for reduced IRMAA you won’t really qualify for”.