One of the big mysteries for me has always been how do Medicare and Social Security work when I go to actually start utilizing them.
We pay into them for decades of our working life, but most Americans, including myself, have little knowledge of how you actually start receiving the benefits that you pay into. Many of us also have been led to believe that once you reach age 65, your health insurance is free as a result of Medicare. As a result of working in the field of income tax preparation, I have come to realize that Medicare is ultimately not free when you begin to receive benefits.
Recipients of Medicare receive a monthly charge called the IRMAA fee.
IRMAA is the acronym for Medicare’s income related adjustment amount. This is the premium charged for Medicare Part B and Medicare Part D to individuals based on their income. IRMAA is an increased premium that many Medicare beneficiaries pay based on their income. Medicare uses the most recent tax return provided by the IRS to compute the IRMAA charge. As a result, the IRMAA charge is based on the income from several years ago. For example, the 2024 IRMAA charges are generally based on the 2022 taxable income of the recipient.
The 2022 IRMAA charges for Medicare Part B are as follows:
Individual income Joint income Monthly Premium
$103,000 or less $206,000 or less $174.70
$103,000-$129,000 $206,000-$258,000 $244.60
$129,000-$161,000 $258,000-$322,000 $349.40
$161,000-$193,000 $322,000-$386,000 $454.20
$193,000-$500,000 $386,000-$750,000 $559.00
Greater than $500,000 Greater than $750,000 $594.00
For those Medicare recipients who also participate in Medicare Part D there is an additional premium as follows:
Individual income Joint income Monthly Premium
$103,000 or less $206,000 or less $0
$103,000-$129,000 $206,000-$258,000 $12.90
$129,000-$161,000 $258,000-$322,000 $33.30
$161,000-$193,000 $322,000-$386,000 $53.80
$193,000-$500,000 $386,000-$750,000 $74.20
Greater than $500,000 Greater than $750,000 $81.00
I am bringing these charges to your attention primarily because of a learning experience that I have encountered several times when preparing tax returns.
Often it is financially beneficial for Ohio taxpayers to file their tax returns as married filing separately rather than married filing jointly. If both parties have relatively the same amount of taxable income this often is the case. The tax savings from filing separately can often be hundreds and even thousands of dollars. However, what the tax software does not compute in the analysis of married filing jointly versus married filing separately is the impact on the IRMAA charges that are impacted several years down the road.
I have found that the additional IRMAA charges generally more than offset any tax savings that would occur. Recently I picked up a new client from another tax preparer as a result of this because they needed their tax return amended back to married filing jointly, so that they could have the reduced IRMAA charges two years down the road.
It is possible to appeal the IRMAA charges if a major life changing event occurred in the time from the original tax filing used to compute the IRMAA charges to when you are actually receiving the corresponding Medicare benefits. However, this can be a complex and bureaucratic process that is timely and can be very frustrating.
Your taxable income does have an impact on the subsequent cost to you of Medicare. Having a basic understanding of this often-mysterious world will help you prepare and possibly reduce or avoid these Medicare premium surprises. As the saying goes, “there is nothing free in life.” The Medicare premiums that many of us were led to believe were ultimately free as a result of paying into Medicare throughout our working life is an example of this saying.
Paul Pahoresky is the owner of PRP & Associates. He can be reached at 440-974-1040 extension 214 or at paul@prpassoc.com. Consult your tax advisor for your specific situation for additional information and guidance on these topics.
