Commentary · Tax Strategy
The Bill That Arrives Two Years Late.
Written by the William Allan team · Published
How Medicare's income surcharge reads your tax return.
Most people think of the Medicare premium as one standard number.
For Part B in 2026, that number is $202.90 a month. But the government estimates that roughly 8 percent of people with Part B pay an income-related surcharge, because their premium also depends on income. CMS's 2026 premium fact sheet
The surprise is which income. Not this year's. Generally, the tax return from two years earlier.
Which means the income you report for 2026 can set a bill that arrives in 2028.
How the Surcharge Works
The surcharge has a clumsy name: the income-related monthly adjustment amount, or IRMAA. It is added to the standard premium for Part B and to the premium for Part D prescription drug coverage.
The Social Security Administration decides whether it applies, using information it receives from the IRS. The income it measures is modified adjusted gross income, or MAGI: adjusted gross income on Form 1040 plus tax-exempt interest. SSA uses the most recent tax information the IRS can provide, which is generally from two years before the premium year and not more than three. SSA's MAGI definition
For 2026, the surcharge begins above $109,000 of that income for an individual filer and above $218,000 on a joint return. For the standard individual and joint filing categories, the monthly Part B premium then steps up through five tiers, from $284.10 to $689.90 per person. Part D adds between $14.50 and $91.00 a month on top of the plan's premium. CMS's 2026 premium tables
Married people filing separately who lived together during any part of the tax year use a different, steeper table. Those who lived apart throughout the year can ask SSA to use the individual table. Filing status matters, not just the income number. SSA's filing-status tables and living-apart rules
Those 2026 amounts are generally based on 2024 tax returns. Your 2026 income will generally be measured against the thresholds for 2028, which have not yet been published. The example below uses the published 2026 figures; it does not predict the thresholds or premiums that will apply in 2028.
A Cliff, Not a Slope
Ordinary federal income tax brackets are gradual. Only the dollars above a line are taxed at the higher rate.
IRMAA does not work that way. Cross a threshold by one dollar and the full surcharge for that tier generally applies for each covered month, for each person subject to the adjustment.
Hypothetical illustration using the published 2026 figures, not a prediction: a couple reported $218,000 of modified adjusted gross income on their 2024 joint return. A second couple reported $218,001. Assume both spouses in each couple have Part B and Part D coverage for all twelve months of 2026 and no revised IRMAA determination applies.
The first couple owes no IRMAA. Each spouse in the second couple pays an extra $81.20 a month for Part B and $14.50 for Part D. Over the year, that one extra dollar of income comes with $2,296.80 in additional premiums for the household: $95.70 a month, times twelve months, times two spouses. Actual amounts depend on income, filing status, coverage, and the figures published for the year in question. SSA's 2026 IRMAA tables
That is how a number that looks harmless on a tax return becomes expensive two years later.
What Counts, and What Counts Quietly
Anything that raises adjusted gross income raises this number too. Common examples:
- The taxable portion of required minimum distributions and other withdrawals from traditional IRAs and pre-tax plan accounts.
- The taxable amount of a Roth conversion.
- Capital gains, including capital-gain distributions from mutual funds in a taxable account, whether or not you sold fund shares.
- Any taxable gain from selling your home after an applicable exclusion.
- A final year of wages, a bonus, or taxable stock compensation, including many RSU settlements.
- The taxable portion of Social Security benefits.
The IRS explains these distinctions in its guidance on investment income, home sales, taxable compensation, and Social Security benefits.
Then there is the item that is not in adjusted gross income at all. Tax-exempt interest is added in. Municipal bond interest that stays off the federal income tax bill does not stay off this one.
Some withdrawals do not increase this income measure. Qualified Roth IRA distributions are excluded from gross income. A qualified charitable distribution can also be excluded when it meets the age, direct-transfer, eligible-charity, annual-limit, and other requirements. Simply withdrawing IRA money and then donating it is different. Spending existing cash principal does not itself create income. IRS Publication 590-B
Deductions taken after adjusted gross income do not lower the number SSA uses. That includes the standard deduction and itemized deductions, such as ordinary charitable deductions. The enhanced deduction for eligible seniors for 2025 through 2028 also reduces taxable income after AGI; it does not reduce IRMAA MAGI. The deduction's own income test is a separate calculation. IRS Schedule 1-A explanation and senior-deduction eligibility
When the Income Drops and the Premium Does Not
The lookback is hardest on the first years of retirement. The last full working year, with a salary and maybe a bonus, can show up as a surcharge after the paycheck has stopped.
That is what a life-changing event request is for. SSA recognizes eight events: death of a spouse, marriage, divorce or annulment, work stoppage, work reduction, loss of income-producing property, loss of employer pension income, and certain employer settlement payments. A qualifying event can allow SSA to use more recent income and filing-status information. An income reduction must be large enough to reduce or eliminate IRMAA; a change in circumstances does not automatically remove the surcharge. SSA's life-changing event rules
Some events are narrower than their names. A loss of income-producing property must be beyond your control, such as a natural disaster or criminal theft. Ordinary market losses do not qualify. Criminal investment fraud can qualify under SSA's evidence rules, which require proof of conviction for that category. The pension event covers specified reductions or losses of employer pension income, and the settlement event concerns payments tied to an employer's closure, bankruptcy, or reorganization. SSA's property-loss rules, pension rules, and employer-settlement rules
Follow SSA's request process, using Form SSA-44 or contacting SSA, with evidence of the event and the more recent income. If the return for that year has not been filed yet, an estimate can be used. Update an estimate if it changes and provide the filed return when available. SSA later checks the information; reconciliation can mean a refund or premiums owed retroactively. Each affected spouse must make a separate request. Other routes exist for an amended return or incorrect IRS information. Form SSA-44 and SSA's new-determination procedures
Notice what is not on the list. A Roth conversion. A large capital gain. The sale of a house. By themselves, these are generally not qualifying life-changing events. A separate qualifying event, such as retirement, still needs to be evaluated on its own facts.
One case deserves attention before it happens. After the year of a spouse's death, a survivor who has not remarried generally files as single, head of household, or qualifying surviving spouse if eligible. SSA puts all three in its individual IRMAA table, even though qualifying surviving spouse can use joint income-tax rates. When that filing status reaches the IRMAA calculation, the thresholds below the top tier are half the joint ones. Much of the household's income may keep arriving. IRS filing-status guidance and SSA's IRMAA tables
Death of a spouse is on the life-changing event list, but a new determination does not automatically remove the surcharge. SSA evaluates the more recent income together with the filing status for that tax year. In years when the survivor uses an individual IRMAA table, the smaller thresholds can offset some of the benefit from lower household income. The spouse who has not handled the money can inherit a premium problem along with everything else. SSA's death-of-spouse policy
The Questions That Actually Decide It
- Roughly where your modified adjusted gross income will land this year, and how it could affect premiums two years later, recognizing that the 2028 thresholds have not yet been published.
- What is still on the calendar before December 31, 2026: a conversion, a sale, a distribution, a bonus, or taxable stock compensation.
- Whether tax-exempt interest is a meaningful part of your income.
- If you stopped working recently, whether a life-changing event applies to a premium you are paying now.
- If you are married, what happens to the household's income, and to the applicable thresholds, when a survivor no longer files jointly.
If you cannot answer those yet, you are not behind. Many households do not look at this number until a letter arrives.
What We Would Tell a Friend
If a friend asked over dinner, without the software, the honest answer would go something like this.
Look at this year's number before December, not after April. Once the year closes, most of the income is set, and Medicare generally looks back to it two years later.
Do not let the surcharge make every decision for you. Paying a higher tier for one year can be a reasonable cost of a Roth conversion or a sale that makes sense for other reasons. It is one input, not a veto. It is possible to spend more avoiding a surcharge than the surcharge would have cost.
And if you stopped working and a surcharge notice arrives anyway, read it. You can ask SSA to consider a qualifying change rather than waiting for the usual tax-data lookback to catch up.
The tax return and the retirement plan meet here. A useful next step is to look at both, while the year is still open, with the financial and tax professionals who can evaluate your circumstances.
Schedule a free introductory call with Ian, who handles first conversations for William Allan. The call is not advice; its purpose is to understand your situation and help arrange the right next step with the advisory team.
This commentary is for informational purposes only and is not investment, tax, or legal advice. All investing involves risk, including the possible loss of principal, and past performance does not guarantee future results. Figures checked September 30, 2026: the premium amounts and income thresholds shown are the published 2026 figures and can change each year. The illustration does not predict 2028 premiums. IRMAA determinations are made by the Social Security Administration based on IRS information and individual circumstances. William Allan does not provide tax advice; tax preparation and tax advice, when provided, are through affiliated Crawshaw CPAs under a separate engagement. Consult a qualified tax professional regarding your situation. William Allan is an investment adviser registered with the SEC; registration does not imply any specific level of skill or training.