Medicare’s high-income surcharges – called IRMAA, for short

IRMAA stands for Income Related Monthly Adjustment Amount. Paying these high-income surcharges is a nice problem to have, in the sense that your income needs to be fairly large to trigger the surcharges.

The amount of these payments is based on federal tax returns, and there usually is a two-year lag between the year you’ve earned money and when that income shows up as the basis for the surcharges. For example, high-income surcharges usually will be based on the tax return you filed two years ago. If you filed for an extension that year, IRMAA will be based on the return you filed three years ago.

If your income has dropped during the intervening period, it’s possible you could qualify for relief from the surcharges due to what the rules classify as a life-changing event.

Each spouse in a couple filing joint a tax return will pay a surcharge based on their combined incomes. It is possible, by filing separate returns, that the household’s total IRMAA payment could be reduced. However, getting some tax advice makes sense, as there often are other tax consequences when a married couple files separate returns.

IRMAA surcharges are based on “modified adjusted gross income,” or MAGI. This usually is your adjusted gross income (AGI) plus any tax-exempt income. , as it appears on your tax return. However, here are some wrinkles in calculating MAGI that might send you to your accountant. They come from a private web site,

“Your MAGI is determined by taking your AGI and “adding back” certain deductions. These are items which can be subtracted from your AGI, but must be included in the calculation of your MAGI:

“half of self-employment tax (self-employed individuals are required to pay “payroll” taxes that an employer would otherwise take; these extra taxes can be deducted from AGI, but are included in MAGI)

• Student loan interest
• Tuition and fees deduction
• Qualified tuition expenses
• Passive income or loss
• Rental losses
• IRA contributions and taxable Social Security payments
• Exclusion for income from U.S. savings bonds
• Exclusion for adoption expenses”