As you get closer to age 65 in Medicare, you may find yourself subject to what I consider to be a hidden tax on your monthly Medicare premiums called Irma. Today, I'm going to explain the IRMAA surcharge and some steps you might take to avoid it. But first, let me introduce myself. My name is Warren Burger and I'm the owner of Luminary Financial Advisors located in Cocoa Beach, Florida, and serving clients across the country. We help people create tax efficient retirement plans. So let's talk about Irma. The Medicare income related monthly adjustment amount or IRMAA, is a surcharge on Medicare premiums for Medicare Part B, which covers Medicare medical insurance and Part D, which covers your prescription drug plan. It applies only to Medicare beneficiaries who have a modified adjusted gross income, a above $97,000 for individuals and 194 thou thousand dollars for couples. If your earnings are below this threshold, Irma doesn't apply to you.
The Medicare IRMAA for Part B, and part D is based on your income and is calculated on a sliding scale. When calculating whether IRMAA charges apply to you, Medicare uses the adjusted gross income amount, which you reported on your tax return from two years prior to the current year. Now, that's an important point that catches a lot of people by surprise. Your final IRMAA payment amount depends on your income and your tax filing status. Here's how it breaks down for Part B. If you get hit with IRMAA, the amount you owe will be added to your Part B premium, which is $164 and 90 cents a month in 2023 for most people. So here's where the two year look period comes into play. If sitting here in 2023, your 2021 income exceeded 97,000 for an individual or 194,000 for a couple, you're going to pay a premium amount ranging from $230 and 80 cents to $560 and 50 cents depending on where your income falls.
So that's Medicare Part B IRMAA for Medicare Part D, the same income limits apply, but the added premium is going to range from $12 and 20 cents to $76 and 40 cents a month depending on your income. When you combine the Irma surcharge for Part B and Part D, you're looking at a total potential increase of between $243 and 6 36 90 per month, which is not insignificant. Just as. As an aside, some people mistakenly think they can avoid paying Irma if they sign 'em for Medicare Advantage instead of original Medicare. However, Irma applies to all Medicare beneficiaries whose earnings are high enough to make them eligible. That's because everyone on Medicare Advantage still owes the normal Part B. That premium is as well as any IRMAA surcharges that are applied. So additionally, if you have Medicare Advantage plan, that
Includes prescription drug coverage, the Part D IRMAA also applies. So how can you avoid getting hit with the IRMAA? If you're a W2 employee that has little control over how and when you receive your income, there's unfortunately not much you can do. But if you're in a business or in an industry where you have some control over when you can assume income, you might want to make some adjustments with an eye on that two year look back period. Where I really see people get surprised with IRMAA is when they're doing Roth conversions, they're trying to fill up certain tax brackets. Now people get so focused on filling the tax bracket that they accidentally trigger the IRMAA threshold. This is why tax planning is so important and also why it can be so tricky. There are a lot of different angles that you have to keep in mind.
We use specialized software to do this with our clients, but if doing this on your own, I definitely recommend you talk to your tax professional. So how do you find out if you owe IRMAA? There's really nothing you real, really nothing you need to do. Social Security will contact you by mail. When you sign up for Medicare, you'll initially be charged the standard Part B premium and the premium, your Part D plan charges, and then Social Security receives your income data from the IRS. Then if your income is high enough for IRMAA to apply, social security will mail you a a predetermination notice. Now that notice will explain that IRMAA will apply how the determination was made and how to proceed if any of the information is incorrect or your situation has changed. After sending out the predetermination notice, social security will mail you an initial determination notice, which is essentially the final notice.
If you receive an initial determination notice, hang on to it and keep it in a safe place if you feel like you may want to appeal. Now, keep in mind that if you receive a notice that you owe Irma and you feel it is incorrect, you do have the right to appeal. To do so. Just contact the Social Security Administration to request that your initial Irma determination be reconsidered. You can do this over the phone or you can do it in writing. I hope you found this information helpful. If you'd like to schedule a complimentary call to discuss your own financial situation, I've included a link to my personal calendar below. Whether or not we ultimately work together. I'll always make sure that we get you pointed in the right direction. Additionally, I've included links to a number of flowcharts and checklists to help you think about some of the important retirement topics that we talk about on these videos. I also have a link to our Facebook group called 10 Years to Retirement, where we focus on retirement education. You can find all of this in the section below. Thanks for watching and I hope to see you soon.