How Is MAGI Calculated for IRMAA Premiums?

Medicare beneficiaries with higher incomes may have to pay an Income-Related Monthly Adjustment Amount (IRMAA) in addition to their standard Medicare Part B and Part D premiums. The Social Security Administration determines this surcharge based on Modified Adjusted Gross Income (MAGI), using tax return data from two years prior.

Understanding how MAGI is calculated is key for those looking to anticipate or reduce IRMAA costs. Even small income changes can push individuals into a higher premium bracket, making it important to know what counts toward MAGI and what adjustments can be made.

Income Sources Included in MAGI

MAGI for Medicare’s IRMAA includes a range of income sources beyond standard taxable earnings. It starts with Adjusted Gross Income (AGI), which consists of wages, salaries, self-employment income, rental income, taxable interest, dividends, and capital gains. However, MAGI also includes certain income sources normally excluded from AGI.

One key addition is tax-exempt interest, such as municipal bond income. While not subject to federal tax, it is included in MAGI calculations. This can catch retirees off guard, as municipal bonds often serve as a tax-efficient income source yet still contribute to higher Medicare premiums.

Distributions from retirement accounts also impact MAGI. Withdrawals from traditional IRAs, 401(k)s, and pensions count, while Roth IRA withdrawals generally do not. Required Minimum Distributions (RMDs), starting at age 73, can significantly increase reported income and raise Medicare costs.

Capital gains from selling stocks, real estate, or other investments also count toward MAGI. Even if these gains are taxed at lower long-term capital gains rates, they can push someone into a higher IRMAA bracket for two years.

Adjustments Required for MAGI

Certain deductions that lower taxable income do not reduce MAGI for IRMAA purposes. Some tax benefits that reduce AGI provide no relief when determining Medicare premiums.

For example, the student loan interest deduction, which allows up to $2,500 to be deducted from AGI, is not excluded from MAGI. Similarly, deductible contributions to traditional IRAs lower AGI but are included in MAGI once withdrawn as taxable income.

Foreign-earned income exclusions do not apply. Taxpayers working abroad can exclude up to $126,500 in foreign-earned income from federal taxation in 2024, but this amount is added back when calculating MAGI.

Health Savings Account (HSA) contributions, which lower AGI for tax purposes, do not reduce MAGI for IRMAA. Individuals contributing to HSAs for tax efficiency may find these contributions do not help them avoid higher Medicare premiums.

Calculating IRMAA Premiums From MAGI

The Social Security Administration uses a tiered structure to determine IRMAA surcharges, with higher income levels leading to progressively larger premium adjustments. These tiers are updated annually and based on tax return data from two years prior. For example, 2025 IRMAA assessments will use 2023 tax returns. Exceeding an income threshold by even a small amount can result in significantly higher Medicare costs.

Each income bracket corresponds to a specific premium adjustment for Medicare Part B and Part D. The standard Part B premium in 2024 is $174.70 per month, but individuals in the lowest IRMAA bracket pay about $69 more per month, while those in the highest bracket see their premiums more than double. Part D surcharges vary by plan but follow a similar structure. These additional costs are deducted from Social Security benefits if applicable or billed separately.

Appealing an IRMAA determination is possible under certain circumstances, such as a life-changing event that significantly reduces income. Qualifying events include retirement, marriage, divorce, or the death of a spouse. To request a reassessment, individuals must file Form SSA-44 and provide documentation. If approved, the premium adjustment may be lowered or removed.