How are tripwires of income that trigger greater Medicare premiums (IRMAA) calculated?
Posted on June 21, 2024
Each October Medicare announces the standard premium that all those on Medicare pay, the greater Income-Related Monthly Adjustment Amounts (IRMAA), and the tripwires of income that trigger higher monthly premiums. I view these higher monthly premiums or surcharges as a tax on those with high income – the top 8% of all those on Medicare. The tripwires are based on Modified Adjusted Gross Income (MAGI) obtained from your most recent tax return. This post describes how the MAGI tripwires are calculated.
MAGI tripwires were last set by tax law with 2019 as the base year. The first four tripwires adjust for inflation based on the change in the average CPI-U index for 12-month periods ending in August. The cumulative changes from the base for 2019 are rounded to the nearest $1000.
Details:
== Standard premium ==
Each year Medicare estimates its cost per enrollee for the upcoming calendar year. One component is Part B coverage – generally outpatient physician visits, home healthcare, and preventive services, such as shots or vaccines. All enrollees pay the standard premium that is 25% of this amount. Those receiving Social Security see this as a reduction in gross benefits. In calendar 2024, the standard premium is $174.70 per month or about $2,096 for the year.
== Some pay more ==
Those with high income pay a greater percentage of the total for Part B and also pay an amount of Medicare’s costs for Part D – drug coverage. The greater amounts are called Income-Related Monthly Adjustment Amounts (IRMAA). There are five levels for IRMAA.
== The Tripwires ==
Tax law sets income levels that trigger IRMAA surcharges. Cross an income level by $1, and you will pay an increment more than the base amount. The tripwires are based on MAGI: Modified Adjusted Gross Income. MAGI for this purpose is Adjusted Gross Income + Federal tax-exempt interest. I’d guess most of us have no tax-exempt interest, so MAGI = AGI. AGI has been on line 11 on several of my past tax returns.
Four of the five tripwires set in 2019 adjust for inflation. The last one does not. Inflation is the change in the average inflation index (CPI-U) for the 12-month periods ending August. The first four tripwires adjust for cumulative inflation and this amount is rounded to the nearest $1000. This pdf shows the calculation for each past year for a single filer. The first four tripwires for married, joint filers are double that for single filers.
I combine the tripwires and IRMAA surcharges for single and married, joint taxpayers for calendar 2024.
== Where does MAGI come from? ==
Medicare looks back at your most recent tax return to find your MAGI. The table above announced last October was for premiums for calendar 2024. Medicare looked at MAGI on your 2022 tax return – you filed that by the previous April 15. This October they’ll look back to your 2023 return that you filed by this past April 15 for premiums to be paid in calendar 2025. And so on.
You will file your upcoming 2024 return before April 15, 2025 and MAGI on that return will be used with the tripwires announced in October 2025 for premiums to be paid in calendar 2026.
== Future tripwires ==
We can estimate future tripwires. We are close to knowing the tripwires for premiums to be paid calendar 2025. We have the CPI indexes for nine of the 12 months for the upcoming calculation. When I use my estimate of inflation for June, July and August, I get the following estimate for tripwires to be issued this fall: you can look at your 2023 return to see if you inadvertently crossed a tripwire.
I can guesstimate the tripwires that will be announced in October 2025 for premiums to be paid in calendar 2026. These are the tripwires applicable to your 2024 tax return. I’ll estimate this again after the final for this year. I don’t think they will change much, though.
Conclusion: Four of five tripwires of income (MAGI) that trigger greater Medicare premiums (IRMAA) are inflation-adjusted from those set for 2019 premiums; the last, largest tripwire does not adjust for inflation. Inflation is the change in the average CPI index for 12-month periods ending in August. The cumulative changes from the base year are then rounded to the nearest $1000.
Medicare looks to your most recent tax return for MAGI. For the premiums for 2024, the table issued in October of 2023 looked to your 2022 tax return that you filed by April 15, 2023.