Medicare premium surcharges based on income from two years back

How it works

Social Security looks at the tax return from two years before, takes adjusted gross income plus tax exempt interest, and compares it with a set of tiers. The first tier begins at this year's official irmaa first tier single (not yet verified here; see the official source below) for a single filer and this year's official irmaa first tier married (not yet verified here; see the official source below) for a joint return, and each higher tier adds a larger monthly surcharge to both the Part B and Part D premiums for the whole year. The tiers are cliffs, so one dollar over a line triggers the full surcharge for that tier. A person whose income has dropped since that year because of retirement, a spouse's death, divorce, or another life changing event the agency lists can ask Social Security to use a more recent year's income instead. Roth conversions, large capital gains, and required minimum distributions all count toward the income.

What it gives

Most people on Medicare pay no surcharge at all.

A documented drop in income after retirement can be used to lower or remove it.

Qualified charitable distributions and Roth withdrawals do not count toward the income figure.

What it costs, or where the catch is

The two year lag means a last high earning year follows a retiree into Medicare.

The tiers are cliffs, with no gradual phase in.

A one time event, such as a home sale with gain above the exclusion or a large Roth conversion, raises premiums for a full year.

A worked example

Rafael retired at 66 and in his final working year had income of $140,000. Two years later, if the single first tier began at $106,000, that year's income puts him in a surcharge tier, adding about $75 a month to Part B and $14 to Part D, a total of $1,068 for the year, since $89 times 12 is $1,068. He files the life changing event form with Social Security showing his retirement income of $55,000, and the surcharge is removed.

Where it goes wrong

The common miss is a large Roth conversion or stock sale in one year without noticing it raises Medicare premiums two years later.

Who confirms it for you

For your own numbers, a benefits counselor at Social Security. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

Medicare.gov: Part B costs. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.