Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting Tips

Shadowy hands on a gray background reach for a piggy bank in the middle.

One of the most significant, yet overlooked, expenses in retirement is the cost of health care. According to the 2024 Milliman Retiree Health Cost Index, a healthy couple will need to have about $395,000 saved just for health care expenses.

While there are federal programs in place to help retirees manage these costs, additional charges can be triggered if your income exceeds a certain threshold. A prime example is Medicare's income-related monthly adjustment amount (IRMAA).

Who gets hit with IRMAA?

IRMAA is a surcharge or tax applied to beneficiaries whose modified adjusted gross income (MAGI) exceeds a certain amount. It was passed back in 2003 as part of the Medicare Modernization Act as a way to offset revenue losses and costs.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

To calculate IRMAA, the Social Security Administration uses the income reported on your income tax returns filed two years prior.

For example, for 2025 the surcharge will be added to premiums for single filers who made more than $106,000, or $212,000 for joint filers, in 2023.

While this tax helps fund and preserve the program, it has the potential to double or triple monthly premiums for higher-income retirees.

For example, the standard monthly premium for Medicare Part B is currently $185. However, beneficiaries subject to IRMAA could pay more than $628 per month.

2023 Income Brackets for 2025 Medicare B

File Individual Tax Return	File Married, Joint Tax Return	File Married, Separate Tax Returns	2025 Medicare B Premium
$106,000 or less	$212,000 or less	$106,000 or less	$185.00
Above $106,000 up to $133,000	Above $212,000 up to $266,000	Not applicable	$259.00
Above $133,000 up to $167,000	Above $266,000 up to $334,000	Not applicable	$370.00
Above $167,000 up to $200,000	Above $334,000 up to $400,000	Not applicable	$480.90
Above $200,000 and less than $500,000	Above $400,000 and less than $750,000	Above $106,000 and less than $394,000	$591.90
$500,000 or above	$750,000 or above	$394,000 or above	$628.90

Medicare.gov

If you're unaware of this tax and exceed the income threshold, your retirement savings are at risk of eroding quickly.

Two ways to deal with IRMAA

The good news is that, with proper planning, you may be able to reposition your income to stay below the threshold and avoid the tax. And if you've already been charged, you might have a case for appealing it.

1. File an appeal

The SSA allows Medicare beneficiaries to appeal the IRMAA surcharge if their income has dropped due to a life-altering event. The most common qualifying event is a loss of income due to retirement or other job changes.

The death of a spouse, divorce or annulment, marriage, loss of pension income or receiving an employer-settlement payment may also qualify you for an appeal.

To file an appeal, you'll need to complete Form SSA-44, which can be found on the administration's website or at a local SSA office.

You'll need to provide documentation to support your appeal, such as a retirement letter or pension-reduction statement, so make sure you have those documents ready to file with your request.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

Once the form is submitted, keep in mind that it may take a few weeks to process your request. In the meantime, continue paying the IRMAA surcharge to avoid any penalties or disruptions in coverage until your appeal is approved.

If you believe you're being charged IRMAA incorrectly, you can request a correction of the tax information being used and provide the IRS with updated documentation showing your current income.

2. Manage your income

You may also be able to strategically position your income to avoid the IRMAA surcharge altogether. Utilizing full or partial Roth conversions, life insurance policies that have a cash value, health savings accounts, annuities, reverse mortgages or even home equity lines of credit can also help keep your MAGI below the threshold.

It's important to note that capital gains, selling investments from a taxable account, and taking required minimum distributions will also count toward IRMAA, or push you into a higher IRMAA bracket, so plan accordingly.

The bottom line

Managing and eliminating every cost in retirement is tedious but crucial to ensuring you can live out your golden years in the way you intended. If you haven't, take the time now to start planning.

If you're retired and feel you've been hit with an IRMAA surcharge incorrectly or are dealing with other issues that may affect your financial well-being, reach out to a trusted professional.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.