A retiree whose income lands at $109,000 pays $202.90 a month for Medicare Part B this year. A retiree at $109,001 pays $284.10, plus another $14.50 a month on top of their drug plan. That single dollar costs $1,148.40 over the year. Understanding how IRMAA works starts with seeing why Medicare would build a rule that behaves this strangely, and the answer is that IRMAA behaves less like a surcharge than like a subsidy being taken away in chunks.
The letters announcing 2027 premiums will start arriving in the next couple of months, and most coverage will focus on the brackets. The brackets matter less than the machinery behind them, because that machinery decides which year of your life is setting your bill, who in your household pays it, and why shopping for a cheaper drug plan during open enrollment won’t touch it.
IRMAA works by withdrawing a 75% subsidy in steps
Start with what Part B actually costs. According to the Social Security Administration, the government pays about 75% of the cost of Part B for most beneficiaries, and the beneficiary pays the other 25%. That 25% is the $202.90 standard premium. The federal government covers the rest.
The income-related monthly adjustment amount, or IRMAA, shrinks that subsidy for people with higher incomes. Instead of paying 25% of the cost, a higher-income beneficiary pays 35%, 50%, 65%, 80% or 85%, depending on which of five income tiers they fall into. So the first tier’s $81.20 monthly add-on is simply the dollar value of moving from a 25% share to a 35% share of the same insurance.
Seeing it this way explains the cliff. A tax usually applies to the income above a threshold, which is why crossing into a higher income tax bracket only affects the dollars above the line (we walked through that in our explainer on how tax brackets work). A subsidy works differently. You either qualify for the bigger subsidy or you don’t, and the moment you don’t, the whole difference disappears at once. IRMAA inherits that all-or-nothing design, five times over.
How IRMAA works on your tax return from two years ago
Medicare doesn’t know your income. The IRS does, and Social Security asks the IRS for it. To set 2026 premiums, SSA used the most recent return the IRS could hand over, which for most people was the 2024 return filed in 2025. The measure is modified adjusted gross income: your adjusted gross income plus any tax-exempt interest. That last piece surprises people. Municipal bond interest that never shows up in your taxable income still counts here.
The two-year gap comes from plumbing. When SSA calculates next year’s premiums in the fall, the most recent complete tax year it can see is the one that ended almost two years earlier. The practical effect is that the decision you make in October 2026 (selling a rental property, doing a Roth conversion, taking a big IRA withdrawal for a new roof) won’t touch your Medicare bill until 2028.
That timing matters more than usual right now. The 2026 Medicare Trustees Report projected a standard Part B premium of $209.50 for 2027, up from $202.90. And the thresholds move every year: they’re indexed to inflation using the average Consumer Price Index over the twelve months ending in August, which is why Kiplinger reports the 2026 brackets rose about 3% while the surcharges themselves rose about 9%. The top tier, $500,000 for individuals and $750,000 for joint filers, has been frozen by statute and is scheduled to start indexing in 2028. That means anyone planning 2026 income is aiming at 2028 thresholds that nobody has published yet.
A worked example: the $500 that costs $1,148
SSA’s 2026 table makes the cliff easy to measure. Imagine a single retiree, Carol, whose 2024 income was going to come in around $97,500. In December 2024 she converted $12,000 from a traditional IRA to a Roth, which pushed her MAGI to $109,500.
The first IRMAA tier for single filers starts above $109,000. Carol is $500 over. Her 2026 Part B premium becomes $202.90 plus $81.20, or $284.10 a month, and her Part D plan premium gets an extra $14.50 a month. Add the two surcharges and multiply by twelve: $95.70 times 12 is $1,148.40 for the year.
Divide that by the $500 that put her over the line and her Medicare cost on those last dollars works out to about 230%. Had she converted $11,500 instead, she would have paid nothing extra. The conversion itself may still have been a smart move over the long run (our piece on Roth versus traditional IRAs covers that tradeoff), but the size of it cost her more than a thousand dollars she didn’t need to spend.
Now make Carol half of a married couple filing jointly, with a combined MAGI of $218,500. The joint threshold is $218,000, so they’re $500 over. IRMAA is charged per beneficiary, not per tax return, which means both spouses pay the surcharge. The household bill for 2026 is $2,296.80, from the same $500.
Your drug plan choice can’t shrink the Part D surcharge
Medicare open enrollment runs October 15 through December 7, and a lot of people with IRMAA assume a cheaper Part D plan will soften the blow. It won’t. SSA ties the Part D surcharge to a national base beneficiary premium, not to your own plan’s price. Pick a plan with a $0 premium and you still owe the full $14.50 (or up to $91.00 in the top tier) every month. If you have drug coverage through a Medicare Advantage plan, the same rule applies.
The money also travels a different route. SSA deducts the Part D adjustment from your monthly Social Security payment no matter how you normally pay your plan, and if your benefit isn’t big enough or you haven’t started benefits, a separate bill arrives from another federal agency. Our breakdown of the 2026 Part D changes covers the plan side; IRMAA sits entirely outside it.
The rule has an exit for income that actually fell
Because the lookback is two years, the system builds in a way to argue that the old return no longer describes you. SSA will make a new decision if your income dropped because of specific life-changing events: marriage, divorce or a spouse’s death; you or your spouse stopping work or cutting hours; losing income-producing property to a disaster; a pension plan ending or being reorganized; or a settlement from an employer that closed or went bankrupt. You file Form SSA-44 with documentation, such as a letter from your employer confirming your retirement date.
Retirement is the big one. Someone who earned $180,000 in their last working year and retires at 65 would otherwise pay surcharges based on a salary they no longer have. The SSA-44 lets them substitute an estimate of the current year’s lower income. A Roth conversion or a one-time capital gain, on the other hand, isn’t on the list. SSA doesn’t count those as life-changing events, so Carol’s $500 isn’t going away on appeal.
If SSA gets the facts wrong, say by using an older return or an income figure that was later amended, you can ask for reconsideration. If that fails, appeals go to an administrative law judge at the Office of Medicare Hearings and Appeals inside the Department of Health and Human Services.
What the machinery means for the next three months
Knowing how IRMAA works, as a subsidy that disappears in steps, changes the planning question. The amount of income matters less than where it lands relative to the line, and which year it lands in. A retiree sitting $3,000 below a threshold in October has real control over 2028 premiums: they can size a Roth conversion, time a sale for January, or draw from a Roth instead of a traditional IRA for the rest of the year.
The 2027 brackets, built on 2025 returns, are already locked in by income that’s been earned. The 2028 brackets are being written by income you’re earning now. That’s the strange gift of a two-year lookback. You can see the bill coming long before it’s sent.