Medicare IRMAA and tax exempt interest.

Maximus

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I start my required minimum distributions next year. I clipped the below quote from a CNBC article today. Can someone shed some light on the prior two year window of tax exempt interest? What is tax exempt interest?


“In some cases, higher income can trigger income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums. Your IRMAA is based on so-called “modified adjusted gross income,” which is your adjusted gross income plus tax-exempt interest, from two years prior.”
 
I start my required minimum distributions next year. I clipped the below quote from a CNBC article today. Can someone shed some light on the prior two year window of tax exempt interest? What is tax exempt interest?


“In some cases, higher income can trigger income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums. Your IRMAA is based on so-called “modified adjusted gross income,” which is your adjusted gross income plus tax-exempt interest, from two years prior.”
Interest from Municipal Bonds or funds may be tax-exempt.
 
Interest from Municipal Bonds or funds may be tax-exempt.
+1. Muni funds was the only tax exempt interest source I’ve ever dealt with. Supposedly there could be muni’s within mutual funds, but I’ve never seen that.
 
Thanks Dash. So Treasury income and CD income do not apply?
 
Thanks Midpack. posted my second question just as you replied.
 
Treasury and CD income is always taxed as ordinary federal income, not tax exempt for federal that I know.
 
Thanks Dash. So Treasury income and CD income do not apply?
They do. As indicated in your OP, take your adjusted gross income (line 11 Form 1040) which includes, CD and Treasury income, add muni income, and you have MAGI for IRMAA calculation.
 
I have NO idea, but what about foreign earned income that is exempt?

I worked overseas a couple of years and got a big exemption when I did so. It might never come up for IRMAA but if they look back it might.
 
Thanks Michael.. I have learned a lot here.. My confusion is the term tax exempt. Why are the categories of muni, treasury and cd called tax exempt yet they must be added as income for federal tax and can increase your IRMAA.
 
Thanks Michael.. I have learned a lot here.. My confusion is the term tax exempt. Why are the categories of muni, treasury and cd called tax exempt yet they must be added as income for federal tax and can increase your IRMAA.
Treasuries are exempt from State Income Tax if your state has any. CDs are always taxable unless in a retirement account.
 
Thanks Michael.. I have learned a lot here.. My confusion is the term tax exempt. Why are the categories of muni, treasury and cd called tax exempt yet they must be added as income for federal tax and can increase your IRMAA.
Muni interest income is not subject to federal income tax (with a small exception). Treasury and CD interest income is taxable.
 
Hey on the bright side only 85% of your SS is included, IIRC. Or in other words, 15% is exempt.:)
 
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Muni interest income is not subject to federal income tax (with a small exception). Treasury and CD interest income is taxable.
Municipal Bonds come in two flavors, Tax Exempt and Taxable, so you need to know what you’re buying. Municipal Bonds purchased for entities in your own state typically are state tax exempt.
Treasuries are not taxed by the states.
 
I have NO idea, but what about foreign earned income that is exempt?

I worked overseas a couple of years and got a big exemption when I did so. It might never come up for IRMAA but if they look back it might.
If it’s not in the AGI it’s also not in the MAGI, excepting muni interest. The FEIE is prior to AGI calculation so it’s not included.
 
IRMAA is based off your prior year's tax filing, which reports income of the year prior to that, hence the reference income is from two years before.
 
I have NO idea, but what about foreign earned income that is exempt?

I worked overseas a couple of years and got a big exemption when I did so. It might never come up for IRMAA but if they look back it might.
Yes, you have to add back the Foreign Earned Income Exclusion for this MAGI. See the link in post #2.
 
Thanks Michael.. I have learned a lot here.. My confusion is the term tax exempt. Why are the categories of muni, treasury and cd called tax exempt yet they must be added as income for federal tax and can increase your IRMAA.
There are federal tax-exempt things, state tax-exempt things, and some both federal and state tax-exempt things. And there is no other law that say tax law has to make sense. ;)
 
Municipal Bonds come in two flavors, Tax Exempt and Taxable, so you need to know what you’re buying. Municipal Bonds purchased for entities in your own state typically are state tax exempt.
Treasuries are not taxed by the states.
Right, that’s what I was referring to as the “small exception”.
 
Yes, you have to add back the Foreign Earned Income Exclusion for this MAGI. See the link in post #2.
If MAGI is 1040 line 11 plus line 2 then the FEIE is not included because it is not included in line 11, AGI.
 
If MAGI is 1040 line 11 plus line 2 then the FEIE is not included because it is not included in line 11, AGI.
If MAGI for IRMAA were 1040 line 11 plus line 2a, then you would be correct. However, that is not how the law defines this MAGI. SSA is creating confusion by publishing an incorrect definition on their own website which definitely doesn't help.

On this page SSA - POMS: HI 01101.010 - Modified Adjusted Gross Income (MAGI), SSA says:
  1. 1.
    Modified Adjusted Gross Income (MAGI) is the sum of:

    • the beneficiary’s adjusted gross income (AGI) (found on line 11 of the Internal Revenue Service (IRS) tax filing form 1040), plus

    • tax-exempt interest income (line 2a of IRS Form 1040).
Here's the actual definition from the CFR: Code of Federal Regulations § 418.1010
(6) Modified adjusted gross income is your adjusted gross income as defined by the Internal Revenue Code, plus the following forms of tax-exempt income:
(i) Tax-exempt interest income;
(ii) Income from United States savings bonds used to pay higher education tuition and fees;
(iii) Foreign earned income;
(iv) Income derived from sources within Guam, American Samoa, or the Northern Mariana Islands; and
(v) Income from sources within Puerto Rico.
 
If MAGI for IRMAA were 1040 line 11 plus line 2a, then you would be correct. However, that is not how the law defines this MAGI. SSA is creating confusion by publishing an incorrect definition on their own website which definitely doesn't help.

On this page SSA - POMS: HI 01101.010 - Modified Adjusted Gross Income (MAGI), SSA says:

Here's the actual definition from the CFR: Code of Federal Regulations § 418.1010
Thanks for the clarification. I did use the SS page as my reference, and I should be surprised it’s not correct, but for some reason, I’m not.
 
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