Medicare Part B SEP Timing With Severance Income to Avoid IRMAA Penalties

Medicare Part B SEP After Job Loss: The 8-Month Clock Explained

The Medicare Part B Special Enrollment Period (SEP) for severance income and IRMAA is the decision framework that determines whether early retirees pay thousands in unnecessary premium surcharges. When you lose employer coverage mid-year, the 8-month SEP clock starts immediately.

The Medicare Part B Special Enrollment Period allows you to enroll in Part B without penalty within 8 months of your employer coverage ending.¹ This clock starts the month after your employment terminates, not when your COBRA coverage expires. If you miss this window, you may face a 10% premium penalty for each 12-month period you delay enrollment.

The 8-month SEP is a one-time window per qualifying event.² Suppose you lose your job on March 15. Your SEP begins April 1 and ends November 30. If you enroll in Part B during this window, you avoid the late enrollment penalty. However, the premium you pay is based on your MAGI from two years prior — which includes your severance income.

The key distinction: COBRA continuation coverage does not extend the SEP deadline. The 8-month clock runs regardless of whether you elect COBRA. Many retirees assume COBRA buys them more time to decide, but the SEP deadline remains fixed to the original job loss date.

How Severance Pay Triggers IRMAA Surcharges on Your Part B Premium

IRMAA (Income Related Monthly Adjustment Amount) surcharges apply to individuals with MAGI above $109,000 or couples filing jointly above $218,000 in 2026.³ Severance pay counts as taxable income in the year received and is included in MAGI calculations that determine IRMAA brackets for that tax year.⁴

Consider a hypothetical: you earn a $75,000 salary through June, then receive a $60,000 severance package paid in July. Your total MAGI for that year is $135,000 — above the individual IRMAA threshold for 2026.³ The standard Part B premium is $185 for 2025, and $174.70 for 2026.³ With IRMAA, your monthly premium could rise to $259 or more, depending on the bracket.

The IRMAA lookback rule means your 2026 Part B premium is based on your 2024 tax return. However, the 2026 IRMAA brackets use 2024 MAGI, not 2022. If your severance year is 2024, the surcharge applies for 2026 and 2027 — two full years of higher premiums. This creates a multi-year cost impact from a single year of severance income.

COBRA Bridge Strategy: Pros and Pitfalls for Mid-Year Medicare Enrollment

COBRA continuation coverage lasting up to 18 months does not trigger a new Part B SEP since it stems from the original qualifying event.⁵ This creates a potential coverage gap if you miss the SEP window while relying on COBRA.

The pitfall: COBRA premiums are typically higher than Part B premiums. In 2025, COBRA premiums average $600-$800 per month⁶ for individual coverage, compared to $185 for Part B. However, the 2026 Part B standard premium is $174.70.³ Over 8 months, COBRA could cost $4,800-$6,400 more than Part B. But if severance pushes you into an IRMAA bracket, Part B with surcharges might cost $259-$400 per month — narrowing the gap.

The pitfall: COBRA premiums are typically higher than Part B premiums. In 2025, COBRA premiums average $600-$800 per month for individual coverage, compared to $185 for Part B. However, the 2026 Part B standard premium is $174.70.³ Over 8 months, COBRA could cost $4,800-$6,400 more than Part B. But if severance pushes you into an IRMAA bracket, Part B with surcharges might cost $259-$400 per month — narrowing the gap.

Calculating Your True Cost: IRMAA Penalties Over 3-5 Years vs. Immediate Part B Enrollment

The COBRA bridge scenario saves roughly $4,000 in Part B premiums over three years¹, but you must subtract COBRA costs. For example, if COBRA costs approximately $600/month for 8 months, the bridge strategy costs slightly more than immediate enrollment.

The decision depends on your specific severance amount, COBRA costs, and projected income in subsequent years. A retiree with $50,000 severance might face a smaller IRMAA impact than one with $100,000 severance.

SSA Form SSA-44: Requesting an IRMAA Recalculation After Severance Receipt

SSA Form SSA-44 allows beneficiaries to request IRMAA reconsideration based on qualifying life events such as retirement, divorce, or work reduction.⁷ If your severance represents a one-time income spike, you can file SSA-44 to have your Part B premium recalculated using your current income rather than the two-year lookback.

To file SSA-44, you need documentation of the qualifying event — typically a termination letter, severance agreement, or final pay stub. The form asks for your estimated current-year MAGI and the reason for the reduction. If approved, the SSA adjusts your Part B premium to the standard rate or a lower IRMAA bracket.

The catch: SSA-44 approval is not guaranteed. The SSA reviews each request and may deny it if the income reduction is temporary or insufficient. For severance recipients, the key is demonstrating that the severance year was an anomaly and your ongoing income is below IRMAA thresholds.

Strategic Timing: When to Enroll in Part B to Minimize IRMAA Impact

The optimal enrollment timing depends on your severance payout schedule and projected income. If your severance is paid in a lump sum in the year of termination, you might delay Part B enrollment until the following year when your MAGI is lower.

Consider a retiree who loses coverage in June 2024 with a $50,000 severance paid in 2024. Their 2024 MAGI includes salary plus severance, potentially triggering IRMAA for 2026. If they use COBRA through 2024 and enroll in Part B in January 2025, their 2025 MAGI is lower, and the 2027 IRMAA lookback uses that lower income.

The 8-month SEP window from June 2024 ends in February 2025. Enrolling in January 2025 falls within this window and avoids the late enrollment penalty. The retiree pays COBRA premiums for 7 months (June-December 2024) but avoids two years of IRMAA surcharges.

Common Mistakes Retirees Make With the Part B SEP Window

Mistake 1: Assuming COBRA extends the SEP deadline. The 8-month clock starts at job loss, not COBRA election. Many retirees wait until COBRA expires to enroll, only to find the SEP window closed.

Mistake 2: Ignoring severance income in MAGI calculations. Severance is taxable income that counts toward IRMAA thresholds. A retiree who assumes their retirement income is below $109,000 may be surprised when severance pushes them into a higher bracket.

Mistake 3: Filing SSA-44 too late. The SSA-44 should be filed as soon as possible after the qualifying event, but there is no strict 60-day deadline; the SSA accepts it at any time if the event is within the current or previous tax year. If you wait until the premium increase takes effect, you may miss the reconsideration window.

Mistake 4: Not comparing COBRA costs to Part B plus IRMAA. COBRA premiums are often higher than Part B, but the IRMAA surcharge can make Part B more expensive. A retiree who chooses COBRA without calculating the total cost may overpay.

Your Next Step

Review your severance agreement and determine the exact payout date and amount. Calculate your projected MAGI for the severance year, including salary, severance, and any investment income. If your MAGI exceeds $109,000 (individual) or $218,000 (joint), file SSA Form SSA-44 within 60 days of your IRMAA notice to request a recalculation. Then, mark your 8-month SEP deadline on your calendar and decide whether to enroll in Part B immediately or use COBRA as a bridge to a lower-income year.