Her Last Paycheck Included 30 Weeks of Severance. Her First Medicare Premium Included a Surcharge.

She took the buyout at 63. Thirty weeks of severance, a small retention bonus, and a final round of vested stock all landed on the same W-2. It felt like a soft landing until, two years later, her first Medicare bill arrived with an extra line she was not expecting. The standard Part B premium was $202.90. Hers was $284.10.

This scenario occurs more than people realize. On retirement forums, a common grievance is someone laid off in their early sixties, cashing out benefits and severance in a single tax year, then getting a letter from Social Security about a Medicare surcharge they did not know existed. The technical name is the Income-Related Monthly Adjustment Amount, usually shortened to IRMAA. The mechanic is simple: Medicare looks at your tax return from two years ago to set today’s premium.

Why a 63-Year-Old Severance Check Shows Up at 65

Medicare Part B premiums in 2026 start at $202.90 a month for anyone with modified adjusted gross income (MAGI) of $109,000 or less for a single filer, or $218,000 or less for a couple filing jointly. Cross those lines by a dollar, and the surcharge kicks in for the whole year. There is no gradual phase-in.

Here is the trap. Severance received at 63 sets the premium at 65 because of the two-year lookback. The year she left work, her salary through the buyout date, 30 weeks of severance paid out in a lump, plus a bonus, all stacked into one tax return. That return became the basis for her Part B premium two calendar years later, right when she enrolled.

A single filer whose modified adjusted gross income (MAGI) lands between $109,000 and $137,000 pays an extra $81.20 a month on Part B, lifting the total to $284.10. That is roughly $975 over a year for income she’d already spent by the time the bill arrived. Push further, into the $137,000 to $171,000 band, and the total premium climbs to $405.80 a month. Part D carries its own smaller surcharge on top of that, starting at $14.50 a month at the same first threshold.

The good news: IRMAA is recalculated every year. A one-time severance spike usually resets after a single year, once a lower-income tax return works its way through the lookback. The better news: there is a formal appeal called a life-changing event request, filed on Form SSA-44. Job loss, retirement, or going part-time all qualify. If she files it with her separation paperwork and a projected income figure for the current year, Social Security can override the two-year-old return and use current income instead.

Where This Sits in the Bigger Picture

The severance year is also the year to think hard about everything else that lands on the tax return. A Roth conversion done in the same year as a big buyout can push income into the next IRMAA bracket without adding much lifestyle benefit. Same with harvesting capital gains from a taxable brokerage account, or taking an early pension lump sum. If she had waited until age 64 to convert, she would have been comparing that income against a much lower base.

Social Security itself interacts here too. The 2026 cost-of-living adjustment (COLA) was 2.8%, which raises benefits but also nudges some retirees closer to the next IRMAA tier over time. Because Part B premiums are deducted straight from the Social Security check, a surcharge quietly shrinks the net deposit for the whole year.

What to Take From This

Two variables are worth sitting with before signing severance paperwork or enrolling in Medicare:

1. Map the tax year the severance lands in against the calendar year you turn 65. If they are two years apart, assume IRMAA is on the table and model the premium at the next bracket up. Timing is the one lever you still control before the return is filed; it is easier to negotiate payout timing, spread income across two tax years, or delay a Roth conversion than to unwind a surcharge later.
2. If work has already ended, file Form SSA-44 as soon as you enroll. The hardest mistake to fix is paying a full year of surcharges quietly because no one mentioned the appeal existed. Bring the separation letter, and project this year’s income accurately.

Every situation carries its own wrinkles, and a single detail like filing status, a working spouse, or the exact payout schedule of a severance package can move the answer by hundreds of dollars a month. Worth walking through with a tax preparer before the ink dries.

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