Deferred Pay Can Lift Medicare Premiums for Years After Retirement, and SSA-44 May Not Solve It

A high-level employee may stop working, but Social Security can still treat deferred compensation as income and charge higher Medicare premiums because of it. Even the form designed to lower that bill may fail to change the amount.

Picture a 66-year-old executive who retires at the end of one year. His regular salary ends, but beginning the next year, a deferred compensation arrangement sends him $150,000 annually for five years. Although he is no longer employed, Social Security still counts those payments when calculating his Medicare premium.

Most retirees never face this issue. The Centers for Medicare & Medicaid Services says income-related surcharges affect about 8% of Medicare Part B enrollees. A single filer with modified adjusted gross income at or below $109,000, or a couple at or below $218,000, pays the standard $202.90 monthly Part B premium. People with deferred compensation often end up above those limits.

Deferred Compensation Can Still Count as Income

A nonqualified deferred compensation plan allows an executive to receive part of his earnings years after the work was performed. Unlike a traditional 401(k), those payments generally cannot be rolled into an IRA to delay income taxes. That distinction matters when the money is paid out. A 401(k) distribution can often be rolled into an IRA and keep taxes deferred, but a nonqualified payout cannot. Each payment is taxable in the year it is received, and the plan will withhold income tax on the taxable portion.

Social Security uses modified adjusted gross income, or MAGI, to determine the income-related monthly adjustment amount, known as IRMAA. MAGI equals adjusted gross income plus tax-exempt interest. Interest from municipal bonds is included as well, even though it is not taxable.

Five Years of Payments Can Mean Five Years of Surcharges

Assume the executive also has $80,000 of other MAGI, bringing his total to $230,000 a year as a single filer. Under 2026 rules, that places him in the bracket from $205,000 to $500,000. He would pay a $649.20 monthly Part B premium and an $83.30 monthly Part D surcharge in addition to his drug plan premium.

Those surcharges alone total $6,355.20 a year. Over five payout years, that comes to $31,776 per person. The calculation uses 2026 thresholds as a stand-in, since the income brackets are reset each year.

The bill arrives with a delay. Social Security generally bases premiums on income from two years earlier. For example, Medicare premiums in 2026 are based on 2024 income. That means the 2027 payout would affect the 2029 premium, and the final 2031 payout would influence the 2033 premium. The 2027 and 2028 premiums would instead reflect the executive’s final salary years.

Married filing status can reduce the damage. A couple with $230,000 of income would fall into the first surcharge tier, where each spouse pays $284.10 for Part B and a $14.50 Part D surcharge. That works out to $1,148.40 per person each year in surcharges. If the wife dies during the payout period, the surviving spouse would switch to single filing on the same income and move to the higher $649.20 level.

Why Retirement Relief Has Limits

Retirement can qualify as a life-changing event. Social Security lists work stoppage as one of eight qualifying events that allow a beneficiary to file Form SSA-44 and ask the agency to use a more recent, lower income year. As one Medicare forum commenter noted, work stoppage is among the accepted life-changing events for SSA-44.

The challenge is how Social Security defines a qualifying income drop. The lower income must be enough to reduce or eliminate IRMAA. If the executive’s income during his working years already fell between $205,000 and $500,000, then a $230,000 retirement estimate lands in the same bracket and the form changes nothing. It only helps if his salary-year income exceeded $500,000, where the total Part B premium rises to $689.90.

The form may become useful after the deferred compensation ends. Social Security can take an earlier retirement into account even if the income drop happens years later. If his MAGI falls to $80,000 after the last payment, he may be able to ask SSA to use that lower income rather than wait for the usual two-year lookback.

What to Review Before Choosing a Payment Schedule

1. Study the election rules now. If the plan allows changes, federal tax rules generally require the election to be made at least 12 months before the scheduled payment and the payment delayed by at least five years. He should model five years of IRMAA before the first check arrives.
2. See whether other income can be reduced by $25,000. That would lower MAGI to $205,000 and cut the combined surcharges to $4,620 a year at 2026 rates. Delaying optional IRA withdrawals or Roth conversions may help.
3. Ask for an IRMAA review after the final payment ends. He can submit Form SSA-44 with retirement details and a lower income estimate. If approved, the adjustment may begin in January of the premium year.