As a retiree, any extra income probably feels welcome. But unfortunately for some, a seemingly minor increase in reported income can ripple through your finances, affecting not just your tax return but also your Medicare premiums.
If you’re on Medicare, the Income Related Monthly Adjustment Amount (IRMAA) means that crossing an income threshold by even one dollar can trigger higher Medicare Part B and Part D premiums.
Understanding how IRMAA works is essential — especially when a single dollar can make a difference. So, here’s more of what you need to know about structuring retirement income to avoid unnecessary costs and taxes.
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The IRMAA impact on Medicare premiums
IRMAA increases Medicare Part B and Part D premiums once your modified adjusted gross income (MAGI) exceeds specific thresholds. For IRMAA purposes, MAGI generally includes adjusted gross income (AGI) plus tax-exempt interest.
The key detail is how the thresholds operate. They are fixed tiers. If income exceeds a threshold by even one dollar, the higher premium applies.
Consider a married couple whose income exceeds an IRMAA threshold by one dollar. Crossing that line moves them into the next premium tier. That single dollar can increase Medicare Part B and D premiums by roughly $ 1,000 per person annually, even though ordinary income tax rates apply only to the additional dollar itself.
For the 2025 tax year (returns you’re filing now this 2026 tax season), retirees who cross the first IRMAA threshold pay an additional $74 per month for Medicare Part B and $13.70 per month for Part D coverage, according to the Centers for Medicare & Medicaid Services (CMS).
That totals approximately $1,052 per person annually, or roughly $2,105 for married couples.
Note: These surcharges apply in addition to ordinary income tax on the same income. IRMAA income thresholds are adjusted annually for inflation, and CMS publishes updated brackets each year.
The two-year IRMMA lookback rule
Here’s the catch: IRMAA doesn’t look at what you’re earning now. The amount is based on your income from two years earlier. That means the income reported on your 2024 tax return determines what you’ll pay for Medicare premiums in 2026.
The rule is spelled out in the Social Security Administration’s IRMAA guidance, but it’s easy to overlook how small income changes from one year to the next can affect future premiums.
For example, because of the lookback delay, a Roth conversion, capital gain, or larger withdrawal might not affect premiums until two years later. By the time the increase appears, the income decision that caused it may feel disconnected from the result.
IRMAA determinations are reassessed each year using the most recent tax return available, which makes income forecasting a critical part of retirement planning.
The compounding tax impact of higher retirement income
As retirement income fluctuates, several tax calculations can shift in tandem.
- Ordinary income tax may increase. As retirement income changes, retirees may find themselves in a higher federal income tax bracket, which could result in a greater percentage of their income being subject to ordinary income tax.
- A larger portion of Social Security benefits may become taxable. With rising income levels, a larger portion of Social Security benefits can become taxable. As Kiplinger has reported, the IRS uses a “combined income formula,” which can lead to up to 85% of Social Security benefits being subject to federal income tax if total income exceeds certain thresholds.
- Required minimum distributions. RMDs are required beginning at age 73 under the SECURE 2.0 Act. These distributions are fully taxable and impact adjusted gross income.
So, even a modest income increase can trigger concurrent increases in taxes on Social Security benefits and Medicare premiums.
Some practical examples
Consider a retiree whose income, based on 2025 IRMAA thresholds, ends up just one dollar over the first income threshold with a MAGI of $106,001. At a 22% federal tax rate, that single dollar starts a chain reaction:
- Medicare Part B premiums increase from $185.00 per month to $259.00 per month, an additional $74 per month, or $888 per year.
- Medicare Part D IRMAA surcharges increase by $13.70 per month, totaling $164.40 per year.
- The $1 itself is taxed at 22%, adding $0.22 in federal income tax.
- Taxes on Social Security benefits may increase depending on the retiree’s provisional income calculation.
The total damage? Approximately $1,052.40 for the year, all because of one extra dollar of income.
Now consider a retiree whose income, based on 2026 IRMAA brackets, ends up just one dollar over the first income threshold with a MAGI of $109,001. At a 22% federal tax rate, that single dollar starts a chain reaction:
- Medicare Part B premiums increase from $202.90 per month to $284.10 per month, an additional $81.20 per month, or $974.40 per year.
- Medicare Part D IRMAA surcharges increase by $14.50 per month, totaling $174 per year.
- The $1 itself is taxed at 22%, adding $0.22 in federal income tax.
- The amount of Social Security benefits subject to tax may increase depending on provisional income positioning.
The total damage? Approximately $1,148.40 for the year, all because of one extra dollar of income.
In each scenario, you can see how the retiree pays more in taxes and Medicare premiums than the extra income generated. That’s the effect of a hard income threshold.
Note: IRMAA isn’t a tax, but it can function like a stealth one. When income increases, both federal taxes and Medicare premiums, the true marginal cost of that extra dollar can be higher than expected.
Managing taxable Income to avoid higher Medicare premiums
Retirees are often vulnerable to surcharges because the IRMAA trigger is highly sensitive to small income changes. However, the objective isn’t to eliminate income but rather to manage its timing.
Because IRMAA responds to shifts rather than just steady increases, maintaining a modest buffer below thresholds can reduce the risk of unexpectedly crossing into a higher tier.
The Occasional Roth Conversion: Converting from a traditional IRA to a Roth IRA can lead to a MAGI spike for that year. However, if completed before Medicare enrollment, these conversions can help reduce future exposure to higher premium tiers. Spreading or “staggering” conversions across multiple years can further reduce sharp increases in adjusted gross income.
Dividends and Capital Gains: Even if you don’t sell, fund payouts quietly increase income. Similarly, large one-time events, like the sale of a business or investment property, can affect premiums. Staggering capital gains rather than realizing them in a single year can help control these income spikes.
Bottom line
When income crosses an IRMAA threshold by even one dollar, Medicare premiums can increase.
But, as you may already have experienced, retirement income doesn’t operate in a vacuum. It flows through the tax code and into Medicare premiums. Comprehensive planning can help you navigate those interactions thoughtfully and keep more of your earnings.
Review your specific financial circumstances with a qualified tax professional. They can help clarify potential tax exposure beforehand rather than after the fact.
