The IRMAA Surcharge: The Stealth Tax Most Pre-Retirees Never See Coming

The IRMAA surcharge can quietly add hundreds to your Medicare premium based on income from two years ago. Here's how it works and how to plan around it.

RETIREMENT

Jaime L. Quiñones, CFP®, EA

7/20/2026

Elderly couple looking at a smartphone together on couch.

Executive Summary

What Is the IRMAA Surcharge?

IRMAA stands for Income-Related Monthly Adjustment Amount. It's a surcharge added to the standard Medicare Part B (medical insurance) and Part D (prescription drug coverage) premiums for beneficiaries whose income exceeds certain thresholds.

Everyone on Original Medicare pays the same standard Part B premium — $202.90 per month in 2026. IRMAA sits on top of that standard premium for higher earners, with various income tiers, so someone in the top income tier could pay well over three times the standard amount before ever seeing a doctor.

How Is This Different From a Regular Income Tax?

A marginal tax bracket only taxes the income that falls within that bracket. IRMAA doesn't work that way. It's structured as a series of cliffs — if your income lands one dollar over a threshold, the higher premium applies for the entire year and the entire tier. There's no phase-in and no partial adjustment. That's part of what makes IRMAA so punishing when it catches someone off guard: a single Roth conversion, a large capital gain, or the sale of a business can be the difference between the standard premium and an IRMAA bracket several tiers higher.

How and When Is IRMAA Calculated?

This is the part that trips up even financially savvy people: IRMAA is not based on your current income. Instead, the Social Security Administration determines your premium using a two-year lookback. Your 2026 Medicare premium is based on the Modified Adjusted Gross Income (MAGI) reported on your 2024 tax return — the most recent return the IRS has on file when the calculation is made.

MAGI, for this purpose, is your adjusted gross income plus any tax-exempt interest. It captures wages, pensions, capital gains, dividends, IRA and 401(k) withdrawals, and Roth conversions — all of it counts, even income you converted intentionally as part of a long-term tax strategy.

The 2026 Income Brackets

For 2026, the surcharge begins to apply once MAGI (from your 2024 return) exceeds $109,000 for single filers or $218,000 for married couples filing jointly. Below those thresholds, you pay the standard $202.90 monthly Part B premium with no surcharge. Above them, there are five progressively higher tiers, topping out at a total Part B premium of $689.90 per month for the highest earners. Part D carries its own smaller surcharge on the same income tiers, ranging from roughly $14.50 to $91.00 per month depending on the bracket.

Keep in mind these figures are per person. A married couple where both spouses are on Medicare pays the surcharge twice — once for each spouse's Part B and Part D coverage.

Married Filing Separately Gets No Cushion

If you're married but file separately and lived with your spouse during the year, there's no gradual ladder of brackets. Above the first threshold, you jump almost immediately to one of the top two tiers. This is one of the more overlooked consequences of filing status in retirement income planning.

Why IRMAA Catches Pre-Retirees Off Guard

That lookback period is precisely why IRMAA functions as a stealth tax. Consider a common scenario: you retire in 2026, and your income that year is modest — maybe just Social Security and a small pension. But your 2024 tax return, filed the year before you retired, still reflects your full working salary, along with perhaps a large capital gain from selling company stock or a sizable Roth conversion. Two years later, in 2026, you receive a letter telling you your Medicare premium has jumped — even though your current income doesn't come close to those thresholds anymore.

This scenario is especially common for pre-retirees exercising equity compensation, selling a business, or doing strategic Roth conversions in the years right before retirement. The income decision happens in one year; the Medicare consequence shows up two years later, often after the original planning conversation is long forgotten.

The Cliff Effect in Practice

Because IRMAA tiers are cliffs, not gradual phase-ins, the cost of crossing a threshold by even a small margin can be disproportionate to the amount of extra income involved. Someone whose MAGI comes in exactly at a bracket line pays the standard premium. A neighbor with virtually identical income, but one dollar higher, pays the full surcharge for that tier, for the entire year, for each Medicare-enrolled spouse in the household. This is why IRMAA planning is often less about avoiding income altogether and more about understanding exactly where the nearest cliff sits before a big financial decision is made.

Strategies to Help Manage IRMAA Exposure

There's no way to make IRMAA disappear if your income genuinely lands in a higher bracket — and this isn't about avoiding legitimate taxes or income you're otherwise entitled to. Instead, it's about being deliberate with the timing of income you have some control over, particularly in the years leading up to and during Medicare enrollment.

Time Conversions and Withdrawals With the Brackets in Mind

If you're doing a Roth conversion, harvesting capital gains, or taking a larger-than-usual IRA distribution, it can be worth modeling where that income lands relative to the current year's IRMAA thresholds — remembering that this year's income sets your premium two years from now, not next year. Sequencing withdrawals across taxable, tax-deferred, and Roth accounts can also help keep reportable income lower in a given year compared with drawing entirely from a tax-deferred account.

Qualified Charitable Distributions (QCDs)

If you're 70½ or older and charitably inclined, a Qualified Charitable Distribution allows you to direct funds from an IRA straight to a qualified charity. The distribution can count toward your required minimum distribution without adding a dollar to your MAGI, which can help keep income below a threshold that would otherwise trigger a surcharge.

Watch for One-Time Income Spikes

A home sale, a large one-time bonus, or a lump-sum distribution can all show up as a premium increase two years later, even if it was a one-time event that doesn't reflect your ongoing income. Being aware of this lag matters most in the years just before Medicare enrollment, since income reported around age 63 is what shapes your very first Medicare premium at 65. This is why retirement income planning after age 63 is so important, as it can eventually affect Medicare premiums in the future.

Can You Appeal an IRMAA Surcharge?

Fortunately, there is a way to appeal the IRMAA surcharge — assuming the reason for the surcharge is one of the available qualified reasons. If your income has genuinely dropped since the tax year used in the calculation, you may be able to request a recalculation using Form SSA-44. This form applies only to specific life-changing events recognized by the Social Security Administration, which generally include:

Marriage
Divorce or annulment
Death of a spouse
Work stoppage
Work reduction
Loss of income-producing property
Loss of pension income
An employer settlement payment

Retirement itself is the most common trigger — a 2024 salary shouldn't necessarily set your 2026 Medicare bill if you've since stopped working.

What Are Some Common Reasons That Do Not Qualify?

It's worth noting what does not qualify: selling a house, realizing capital gains, or a Roth conversion. These are all common reasons that typically do not qualify for an IRMAA surcharge appeal. In those situations, you may have to simply pony up and pay the bill and have to wait out the two-year lookback period.

Putting It All Together

IRMAA rarely shows up as a single, obvious decision point. The main takeaway is that it is the cumulative effect of income decisions made two years before the bill arrives — decisions about when to convert, when to sell, when to retire, and how to draw down accounts. That's exactly why it deserves a place in the same planning conversation as Social Security claiming, Roth conversions, and retirement account withdrawals, rather than being treated as an afterthought once the letter shows up in the mail.

Frequently Asked Questions

Does IRMAA apply to everyone on Medicare?

No. The Centers for Medicare & Medicaid Services estimates that only a minority of Part B beneficiaries pay an income-related amount. It applies only once MAGI from two years prior exceeds the applicable threshold for your filing status.

If my income drops this year, will my Medicare premium go down right away?

Not automatically. Because the standard calculation uses a two-year lookback, a drop in income this year typically won't affect your premium until two years from now — unless the drop was due to a qualifying life-changing event, in which case Form SSA-44 may allow for an earlier recalculation.

Does a Roth conversion count toward the income used for IRMAA?

Yes. The full converted amount is treated as ordinary income in the year of the conversion and flows into the MAGI calculation used two years later.

Is IRMAA a one-time charge or does it apply every year?

IRMAA is reassessed annually based on your MAGI from two years prior, so your surcharge tier can change from year to year depending on your income in the relevant tax year.

Let's Talk Through Your Situation

Every household's income picture is different, and the right approach to managing IRMAA exposure depends on your overall retirement income plan, your account mix, and your timeline to Medicare enrollment. If you'd like to talk through how this might apply to your circumstances, schedule a call with me and we'll walk through it together.

All content is for informational purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results.

The Income-Related Monthly Adjustment Amount (IRMAA) surcharge is an additional premium paid on top of your regular Medicare Part B and Part D premiums based on your income. The kicker is that it is calculated using your income from two years earlier — meaning a big income year today can raise your Medicare costs well after that income is long gone. This is why I call IRMAA a "stealth tax" for a reason. It doesn't show up on your Form 1040. It isn't withheld from a paycheck. Many people don't even know it exists until a letter arrives from the Social Security Administration informing them that their Medicare premium is about to increase — sometimes by hundreds of dollars a month. By then, the income that triggered it is often two years in the past, and there's nothing left to do about it.

In addition, because the brackets work like cliffs rather than gradual phase-ins, a single dollar of extra income can trigger thousands of dollars in additional premiums for the year. The main point is that understanding the lookback period, the bracket structure, and the handful of planning tools available — timing of income, qualified charitable distributions, and the SSA-44 appeal — can help you avoid being surprised by it.