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.

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.

Crossing IRMAA threshold one dollar: 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.

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