IRMAA cutoffs & 2-year lookback

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
User avatar
Topic Author
ResearchMed
Posts: 16795
Joined: Fri Dec 26, 2008 10:25 pm

IRMAA cutoffs & 2-year lookback

Post by ResearchMed »

There is that 2-year look-back for Medicare. How does that actually work?
The cut-offs can change from year to year. (Do they always/only go up?)

For 2024, for example, would the "total adjusted income amount", calculated from 2022, get applied to the 2022 IRMAA cutoffs, or to the then-current 2024 IRMAA cutoffs (which aren't known yet)?

Sorry if this turns out to be a silly question, but I was for the first time starting to figure what might be happening. We finally can adjust income timing somewhat... and this suddenly occurred to me.
I realize it may not change much but who knows... and regardless, I want to understand how it "works".

Thanks.

RM
This signature is a placebo. You are in the control group.
notBobToo
Posts: 213
Joined: Wed Jan 02, 2019 9:07 pm

Re: IRMAA cutoffs & 2-year lookback

Post by notBobToo »

In your example, your MAGI for 2022 determines your IRMAA (or not) for the single year of 2024. Then 2023 for 2025; 2024 for 2026; and so on. Each year stands on its own.

If you go over the IRMAA cliff in 2022 (for 2024 premiums), you pay the IRMAA for 2024 only. If you are under the clip level for 2023 (for 2025), you pay only the base rate for 2025 (no IRMAA surcharge). If you fall over the cliff again in 2024, you pay the IRMAA for 2026.

Note that your IRMAA applies to both of a MFJ couple, and to both Part B and Part D premiums.
mhalley
Posts: 10432
Joined: Tue Nov 20, 2007 5:02 am

Re: IRMAA cutoffs & 2-year lookback

Post by mhalley »

It is possible for IRMAA to go down.
User avatar
Topic Author
ResearchMed
Posts: 16795
Joined: Fri Dec 26, 2008 10:25 pm

Re: IRMAA cutoffs & 2-year lookback

Post by ResearchMed »

notBobToo wrote: Wed Oct 27, 2021 11:03 am In your example, your MAGI for 2022 determines your IRMAA (or not) for the single year of 2024. Then 2023 for 2025; 2024 for 2026; and so on. Each year stands on its own.

If you go over the IRMAA cliff in 2022 (for 2024 premiums), you pay the IRMAA for 2024 only. If you are under the clip level for 2023 (for 2025), you pay only the base rate for 2025 (no IRMAA surcharge). If you fall over the cliff again in 2024, you pay the IRMAA for 2026.

Note that your IRMAA applies to both of a MFJ couple, and to both Part B and Part D premiums.
Thanks.
Does one pay the IRMAA surcharge in effect that at the prior time, when the income and cut-offs are applied, or is it the surcharges that are in effect two years later?

RM
This signature is a placebo. You are in the control group.
chemocean
Posts: 1575
Joined: Mon Dec 19, 2016 8:45 pm

Re: IRMAA cutoffs & 2-year lookback

Post by chemocean »

Note that you won't know what the 2023 IRMMA cliffs are until fall of 2022. So there is a bit of guessing at the end of 2021 how much the 2023 IRMMA cliffs will increase due to inflation. Come back to the forum next month and there will be lots of discussion about estimates of the 2023 IRMMA thresholds.
If you have control over your AGI (i.e., Roth conversions and tax harvesting), it pays to be conservative or you will pay dearly for going over the cliff that is just over the next horizon.
notBobToo
Posts: 213
Joined: Wed Jan 02, 2019 9:07 pm

Re: IRMAA cutoffs & 2-year lookback

Post by notBobToo »

ResearchMed wrote: Wed Oct 27, 2021 11:13 am
notBobToo wrote: Wed Oct 27, 2021 11:03 am In your example, your MAGI for 2022 determines your IRMAA (or not) for the single year of 2024. Then 2023 for 2025; 2024 for 2026; and so on. Each year stands on its own.

If you go over the IRMAA cliff in 2022 (for 2024 premiums), you pay the IRMAA for 2024 only. If you are under the clip level for 2023 (for 2025), you pay only the base rate for 2025 (no IRMAA surcharge). If you fall over the cliff again in 2024, you pay the IRMAA for 2026.

Note that your IRMAA applies to both of a MFJ couple, and to both Part B and Part D premiums.
Thanks.
Does one pay the IRMAA surcharge in effect that at the prior time, when the income and cut-offs are applied, or is it the surcharges that are in effect two years later?

RM
I am not sure what you are asking.

I went over the cliff one time (so far). If I remember correctly, I got my IRMAA letter in the Fall prior to the effective year. So for example, after processing my returns for tax year 2014, Uncle sent me a letter in October of 2015 asking for a higher contribution for the year beginning January 2016. The amounts specified in the letter were just that: the IRMAA surcharges that were to be applied to the Medicare B/D premiums for 2016 (only). I suppose that the IRMAA surcharges could change (go higher) every year. Why not?
User avatar
Topic Author
ResearchMed
Posts: 16795
Joined: Fri Dec 26, 2008 10:25 pm

Re: IRMAA cutoffs & 2-year lookback

Post by ResearchMed »

notBobToo wrote: Wed Oct 27, 2021 12:17 pm
ResearchMed wrote: Wed Oct 27, 2021 11:13 am
notBobToo wrote: Wed Oct 27, 2021 11:03 am In your example, your MAGI for 2022 determines your IRMAA (or not) for the single year of 2024. Then 2023 for 2025; 2024 for 2026; and so on. Each year stands on its own.

If you go over the IRMAA cliff in 2022 (for 2024 premiums), you pay the IRMAA for 2024 only. If you are under the clip level for 2023 (for 2025), you pay only the base rate for 2025 (no IRMAA surcharge). If you fall over the cliff again in 2024, you pay the IRMAA for 2026.

Note that your IRMAA applies to both of a MFJ couple, and to both Part B and Part D premiums.
Thanks.
Does one pay the IRMAA surcharge in effect that at the prior time, when the income and cut-offs are applied, or is it the surcharges that are in effect two years later?

RM
I am not sure what you are asking.

I went over the cliff one time (so far). If I remember correctly, I got my IRMAA letter in the Fall prior to the effective year. So for example, after processing my returns for tax year 2014, Uncle sent me a letter in October of 2015 asking for a higher contribution for the year beginning January 2016. The amounts specified in the letter were just that: the IRMAA surcharges that were to be applied to the Medicare B/D premiums for 2016 (only). I suppose that the IRMAA surcharges could change (go higher) every year. Why not?
Thanks.
So even though it was tax year 2014 used to calculate your income (of course) and 2014 IRMAA cut-offs, those 2014 cut-offs are applied to the 2016 IRMAA surcharge (which yes, is likely to be somewhat higher)?

RM
This signature is a placebo. You are in the control group.
tibbitts
Posts: 23728
Joined: Tue Feb 27, 2007 5:50 pm

Re: IRMAA cutoffs & 2-year lookback

Post by tibbitts »

I find this confusing too, but my understanding is that IRMAA brackets for ty2021 income won't be known until at least the end of calendar 2022. Since I think the brackets are inflation indexed, the more inflation, the more they should increase. So if I let my income reach $166k in this year that I turn 63, I probably won't end up in the 2nd highest (filing single) IRMAA tier for my initial IRMAA, although I would if the current $165k was applied.
secondcor521
Posts: 1604
Joined: Wed Sep 10, 2014 4:11 pm

Re: IRMAA cutoffs & 2-year lookback

Post by secondcor521 »

The IRMAA brackets, or cutoffs, are now indexed to some version of inflation.

The IRMAA surcharges, or dollar additions, are also adjusted annually, but I think they adjust to the change in Medicare costs.

The surcharge you pay in year N+2 is based on your AGI in year N, but will be the year N+2 amount.
User avatar
Topic Author
ResearchMed
Posts: 16795
Joined: Fri Dec 26, 2008 10:25 pm

Re: IRMAA cutoffs & 2-year lookback

Post by ResearchMed »

secondcor521 wrote: Wed Oct 27, 2021 1:22 pm The IRMAA brackets, or cutoffs, are now indexed to some version of inflation.

The IRMAA surcharges, or dollar additions, are also adjusted annually, but I think they adjust to the change in Medicare costs.

The surcharge you pay in year N+2 is based on your AGI in year N, but will be the year N+2 amount.
Thanks!

That answers my last question.

I figured that was the case, until I realized that the cut-offs are still back in the earlier year.
I doubt it will make a difference, but wanted to have the best understanding, etc.

RM
This signature is a placebo. You are in the control group.
secondcor521
Posts: 1604
Joined: Wed Sep 10, 2014 4:11 pm

Re: IRMAA cutoffs & 2-year lookback

Post by secondcor521 »

No problem.

I should add to completely clarify, the surcharge you pay in year N+2 is based on the relationship between your year N AGI and the year N+2 cutoffs.

In other words, as a previous poster alluded to, there is some guessing going on if you cut it close - will the inflation changes increase the cutoffs in two years enough to keep me below the cutoff?

Personally, when I get to that point, I think I'll just aim for an AGI just below whatever the applicable year N cutoff will be, and then hope any inflation adjusted cutoffs are the same or more.
tibbitts
Posts: 23728
Joined: Tue Feb 27, 2007 5:50 pm

Re: IRMAA cutoffs & 2-year lookback

Post by tibbitts »

ResearchMed wrote: Wed Oct 27, 2021 1:26 pm I figured that was the case, until I realized that the cut-offs are still back in the earlier year.
RM
Cut-offs meaning brackets? The brackets should not be for the earlier/current year in which you earned the income; they would be for the future n+2 year, no? So as I said you should be able to exceed the current bracket limitations by some modest amount without eventually ending up in a higher bracket, especially now with some amount of inflation.
Alan S.
Posts: 12669
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: IRMAA cutoffs & 2-year lookback

Post by Alan S. »

ResearchMed wrote: Wed Oct 27, 2021 10:51 am
The cut-offs can change from year to year. (Do they always/only go up?)

Thanks.

RM
There has been two lengthy threads debating this question. We know that the US Code prescribes use of CPI U change compared to the most recent base year, but also refers to "increases" rather than "adjustments".

This question may become more than a theoretical one if we have sustained high inflation which is now underway. A long period of high inflation can easily result in a recession due to interest rate increases that follow, and from such high levels the CPI U could drop from year to year (deflation). This could happen as soon as the next adjustment in the fall of 2022 creating the 2023 tiers.

So with deflation do the IRMAA MAGI tiers just remain the same until CPI U finally increases back above that of the prior year, or can the IRMAA MAGI tiers actually drop from year to year? Does the use of the term "increase" in the code actually mean "adjustment"? The Finance Buff thinks so and commented here:
Because the formula compares the average of CPI numbers in a 12-month period over the average of CPI numbers in the previous 12-month period, even if inflation is 0% in the following months, the average will still be higher than the average in the previous months. If inflation is positive, the IRMAA brackets for 2023 may be higher than these. If inflation is negative, which is rare but still possible, the IRMAA brackets for 2023 may be lower than these.
That said, even if there is a decrease, if I recall correctly it cannot drop the tiers below the 2020 level
FactualFran
Posts: 2776
Joined: Sat Feb 21, 2015 1:29 pm

Re: IRMAA cutoffs & 2-year lookback

Post by FactualFran »

Alan S. wrote: Wed Oct 27, 2021 6:41 pm So with deflation do the IRMAA MAGI tiers just remain the same until CPI U finally increases back above that of the prior year, or can the IRMAA MAGI tiers actually drop from year to year? Does the use of the term "increase" in the code actually mean "adjustment"? [snip]
The IRMAA MAGI thresholds can drop from year to year but cannot drop below the thresholds established by the law for determining the IRMAA charged during 2019. Usually, the MAGI from the income tax return for 2017 was used to determine the IRMAA during 2019.
2pedals
Posts: 1988
Joined: Wed Dec 31, 2014 11:31 am

Re: IRMAA cutoffs & 2-year lookback

Post by 2pedals »

I was looking at this today for next year's income when I sign up for 2024. I found a good article here:

https://thefinancebuff.com/medicare-irm ... ckets.html
User avatar
billthecat
Posts: 1052
Joined: Tue Jan 24, 2017 1:50 pm
Location: USA

Re: IRMAA cutoffs & 2-year lookback

Post by billthecat »

chemocean wrote: Wed Oct 27, 2021 11:15 am Note that you won't know what the 2023 IRMMA cliffs are until fall of 2022. So there is a bit of guessing at the end of 2021 how much the 2023 IRMMA cliffs will increase due to inflation. Come back to the forum next month and there will be lots of discussion about estimates of the 2023 IRMMA thresholds.
If you have control over your AGI (i.e., Roth conversions and tax harvesting), it pays to be conservative or you will pay dearly for going over the cliff that is just over the next horizon.
Sticking with the timeframe used to start this thread, how does this work if a person gets an extension to file their income tax return? That is, suppose they got an extension for their 2021 return until Oct. 2022. Is the Oct - Dec 2022 window sufficient to figure out the person's Part B premium going into 2023? I am not familiar with the mechanics of signing up for, or renewing, Medicare each year.
We cannot direct the winds but we can adjust our sails • It's later than you think • Ack! Thbbft!
jj
Posts: 357
Joined: Sun Mar 04, 2007 8:44 am
Location: Texas

Re: IRMAA cutoffs & 2-year lookback

Post by jj »

billthecat wrote: Tue Jun 06, 2023 12:39 am
chemocean wrote: Wed Oct 27, 2021 11:15 am Note that you won't know what the 2023 IRMMA cliffs are until fall of 2022. So there is a bit of guessing at the end of 2021 how much the 2023 IRMMA cliffs will increase due to inflation. Come back to the forum next month and there will be lots of discussion about estimates of the 2023 IRMMA thresholds.
If you have control over your AGI (i.e., Roth conversions and tax harvesting), it pays to be conservative or you will pay dearly for going over the cliff that is just over the next horizon.
Sticking with the timeframe used to start this thread, how does this work if a person gets an extension to file their income tax return? That is, suppose they got an extension for their 2021 return until Oct. 2022. Is the Oct - Dec 2022 window sufficient to figure out the person's Part B premium going into 2023? I am not familiar with the mechanics of signing up for, or renewing, Medicare each year.
I'm pretty sure that SSA and Medicare will catch up with you and apply the correct premium adjustment even if your tax filing is extended.

My personal experience is with filing in April 2022 for TY 2021. By beginning of 2023 the extra premium came out of the SS direct deposit, as expected. After all they 8 months to figure it out.
...it is madness to risk losing what you need in pursuing what you simply desire. Warren E. Buffett
Post Reply