What is IRMAA??
If you are joining Medicare you may get a letter with these letters on it, IRMAA. So what does it mean? How long does it last? Is there anything you can do about it? What are the Medicare costs for 2020?
IRMAA stands for Income Related Monthly Adjustment Amount. It has a direct effect on your medicare costs for 2020. The gist of it is that if you made over certain income amounts 2 years ago, 2018 as of this blog post, you will have to pay more than the standard Part B and Part D premium. The standard Part B premium is $144.60 for folks just joining this year and depending where you are Part D may be $0 all the way to $100 or more a month. It completely depends on what type of secondary plan you choose and what County you live in. There are 6 tiers with IRMAA for 2020. We will go over the different amounts below. You can read more about the initial IRMAA determination on the Medicare.gov website HERE.
Under two Presidents, George W. Bush and Barack Obama, IRMAA eligibility was expanded with the goal of making Medicare more financially stable. President Obama’s administration attempted to save the Federal Government over 20 Billion dollars over a decade.
For most people on Medicare, the Federal Government pays the majority share for your Part B and Part D coverage, about 2/3 of those costs. If you are a higher income earner, you will have to pay a bigger percentage of your coverage. This is your IRMAA. You will pay this in addition to your normal premium. If you think you will have to make IRMAA payments, keep reading for more information on what you might have to pay.
How is IRMAA calculated?
The government determines whether you qualify for IRMAA by finding your modified adjusted gross income (MAGI). Your monthly IRMAA payment for each year is determined by your MAGI from two years prior. Which means that for most people, IRMAA is not a permanent thing. Your MAGI is your adjusted gross income (AGI) with certain costs added back to it. Your AGI is a commonly used income figure to determine your income bracket for tax purposes. AGI includes your total income for the year with certain deductions subtracted. Your MAGI adjusts by adding some deductions back, and so it might, in some cases, be higher than your AGI. Most people’s MAGI is identical to or slightly higher than their AGI. Deductions added back to your MAGI can include:
- Student loan interest
- IRA contributions
- Any passive income loss
- Deductions for tuition and fees
- Taxable social security payments
Below are the five income threshold tiers for 2018 that would apply for someone joining Medicare this year and the Medicare costs for 2020.
- Tier 1 consists of individuals with MAGIs of less than $87,000 and married couples filing jointly with MAGIs of less than or equal to $174,000.
- Tier 2 consists of individuals with MAGIs between $87,000 and $109,000 and married couples filing jointly with MAGIs between $174,000 and $218,000.
- Tier 3 consists of individuals with MAGIs between $109,000 and $136,000 and married couples filing jointly with MAGIs between $218,000 and $272,000.
- Tier 4 consists of individuals with MAGIs between $136,000 and $163,000 and married couples filing jointly with MAGIs between $272,000 and $326,000.
- Tier 5 consists of individuals with a MAGI greater than $163,000 and less than $500,000 and married couples filing jointly with a MAGI greater than $326,000 up to $750,000.
- Tier 6 consists of individuals with a MAGI greater than $500,000 and married couples filing jointly with a MAGI greater than $750,000.
Keep in mind: Your IRMAA payments aren’t determined by how much money you made the previous year but rather your MAGI from two years ago. So you can be relieved that IRMAA is not permanent!
Who has to pay IRMAA
As noted above, only individuals who earn more than $87,000 and married couples filing jointly who earn more than $174,000 are required to pay IRMAA.
IRMAA affects less than 5 percent of people with Medicare, so, comparatively speaking, most folks will not have to worry about the added expense. The numbers get even lower as you go into the higher tiers of IRMAA payers. However, in 2015, there were at least 39 million beneficiaries of either Medicare Part B or Medicare Part D, and some people paid into both. Most people will not have to worry about this and their Medicare costs for 2020 will be the base rate.
If you are still confused on all of this, Contact us for professional help!