Medicare Costs in Retirement: How Much Should You Budget?
A realistic Medicare retirement budget should include much more than the Medicare Part B premium.
How Does Medicare Determine Your Income for IRMAA?
Last Modified: 10/05/2026 | Reviewed by Keith Armbrecht (NPN 634015)
Quick Summary
Social Security generally determines Medicare IRMAA using your modified adjusted gross income, or MAGI, from your federal tax return two years before the Medicare premium year.
For 2026 Medicare premiums, Social Security will therefore generally use your:
2024 tax information
For IRMAA purposes, MAGI generally consists of your adjusted gross income plus tax-exempt interest income.
Key Facts
- Social Security determines IRMAA.
- The IRS supplies tax information.
- Medicare generally uses income from two years earlier.
- 2026 IRMAA generally uses 2024 income.
- The key number is MAGI.
- MAGI includes adjusted gross income.
- Tax-exempt interest is added.
- Tax filing status matters.
- IRMAA is recalculated each year.
- More recent income may be considered after certain qualifying life-changing events.
- Form SSA-44 is commonly used to request a new IRMAA determination after a qualifying event.
What Is MAGI for Medicare IRMAA?
For this purpose, SSA describes MAGI as:
Adjusted Gross Income
plus
Tax-Exempt Interest Income
On the current Form 1040, SSA identifies these as generally:
Line 11 — Adjusted Gross Income
plus
Line 2a — Tax-Exempt Interest
Example
Suppose your tax return shows:
Adjusted Gross Income:
$200,000
Tax-exempt interest:
$25,000
Your Medicare IRMAA MAGI would generally be:
$225,000
That is the amount compared with the applicable IRMAA income thresholds.
Why Does Medicare Look Back Two Years?
Social Security uses tax information supplied by the IRS.
The normal rule is to use the tax year two years before the premium year.
Therefore:
2026 Medicare premiums → generally 2024 tax information
2027 Medicare premiums → generally 2025 tax information
What Types of Income Can Affect MAGI?
Because many types of income flow into adjusted gross income, events such as these can potentially affect Medicare IRMAA:
- Wages
- Taxable retirement distributions
- Traditional IRA distributions
- Taxable 401(k) withdrawals
- Roth conversions
- Capital gains
- Taxable Social Security benefits
- Pension income
- Interest
- Dividends
Tax-exempt interest is then added for Medicare’s MAGI calculation.
Roth Conversions and IRMAA
A Roth conversion can increase adjusted gross income.
That means a large Roth conversion may potentially push you across an IRMAA threshold.
This doesn’t necessarily mean you shouldn’t do the conversion.
It means the potential Medicare cost should be part of the planning calculation.
What If Your Income Has Dropped?
If the tax return being used doesn’t reflect your current financial situation because of a qualifying life-changing event, you may be able to request a new IRMAA determination.
Video Explanation from Keith
What Income Does Medicare Use for IRMAA?
Keith's Take
IRMAA is one reason Medicare and retirement tax planning need to talk to each other.
A financial decision can be good for income taxes but still create an additional Medicare cost.
For example, suppose you’re right below an IRMAA threshold and you’re considering a large Roth conversion.
I’m not saying don’t do it.
I’m saying:
Know the Medicare consequence before you do it.
Sometimes paying IRMAA is still worth it to accomplish a larger financial objective.
The mistake is being surprised by it two years later.
Keith Armbrecht
Medicare on Video
Frequently Asked Questions
Q. What income does Medicare use?
A. Modified adjusted gross income from your federal tax information.
Q. What is Medicare MAGI?
A. Generally AGI plus tax-exempt interest for IRMAA purposes.
Q. Which tax return determines 2026 IRMAA?
A. Generally 2024.
Q. Does Social Security use current income?
A. Usually it starts with IRS tax information from two years earlier.
Q. Do Roth conversions count?
A. A taxable Roth conversion increases AGI and can therefore affect IRMAA.
Q. Do capital gains count?
A. Capital gains included in AGI can affect your IRMAA calculation.
Q. Does tax-exempt municipal bond interest count?
A. Tax-exempt interest is added to AGI when determining Medicare IRMAA MAGI.
Q. Can Social Security use newer income?
A. Potentially, particularly after an eligible life-changing event.
Official Government Sources
Explore Related Guides
Can a Roth Conversion Increase Your Medicare Premiums?
Yes. A Roth conversion can increase your future Medicare Part B and Part D premiums because the taxable portion of the conversion generally increases adjusted gross income.
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