Avoiding an IRMAA Surcharge on Your Boston Public Schools Sick Leave Payout
For Boston Public Schools employees retiring within two years of Medicare eligibility (age 65). If you are more than two years from Medicare enrollment this article does not apply to you — the buyback payments will fall outside Medicare's two-year lookback window entirely.
What you will take from this article:
- BPS issues the buyback in two payments — the first can be deferred, the second cannot
- Medicare looks back two years at your income — a large buyback payment can trigger IRMAA surcharges long after you retire
- Defer the first payment and you may significantly reduce or eliminate that IRMAA exposure
- The second payment is always taxable — but if your ongoing income has dropped, SSA-44 may let you challenge the surcharge
Need help setting up deferral accounts before you retire? Contact Tim →
Boston Public Schools is one of the few remaining Massachusetts school systems that allows employees to sell back unused sick leave upon retirement. For many long-serving employees the buyback can reach well into six figures.
For employees retiring close to Medicare eligibility, that windfall can also trigger an IRMAA surcharge — a Medicare premium increase that can follow you into retirement for two separate years. If you are retiring at 58 or 60, this does not apply to you. If you are retiring at 63, 64, or 65, the buyback payments land directly in the window Medicare uses to set your premiums.
How the Buyback Payments Work
BPS pays the sick leave buyback in two separate installments.
The first payment is issued in the calendar year you retire. You have the option to defer this payment into your 403(b) and/or 457(b) retirement accounts. If you defer it, it does not count as taxable income that year and never enters your Medicare income calculation.
The second payment is issued the following calendar year. There is no deferral option. It is fully taxable income in the year you receive it, and it will be included in your Modified MAGI for Medicare purposes.
The accounts must be open and active before you submit your retirement paperwork. There is no retroactive option. If your 403(b) or 457(b) does not exist when the buyback is processed, the opportunity to defer the first payment is permanently lost.
What IRMAA Is and Why the Buyback Triggers It
IRMAA is a Medicare surcharge added to your Part B and Part D premiums when your income exceeds certain thresholds. It is calculated using your Modified MAGI — which includes all taxable income including buyback payments — from two years prior.
That two-year lookback is what catches people off guard. You retire in 2025. You receive the first buyback payment in 2025 and the second in 2026. Medicare looks at your 2025 income when setting your 2027 premiums, and your 2026 income when setting your 2028 premiums. A payment you received years ago is still affecting what you pay for Medicare today.
The surcharge is assessed per person. A single retiree and a married couple face different thresholds — which matters significantly when estimating whether your buyback pushes you over a cliff.
2025 IRMAA Thresholds — Single Filer
| Modified MAGI — Single | Part B / mo | Part D / mo | Annual Surcharge |
|---|---|---|---|
| ≤ $106,000 | None | None | None |
| $106,001 – $133,000 | $74.00 | $13.70 | $1,052 / yr |
| $133,001 – $167,000 | $185.00 | $35.30 | $2,643 / yr |
| $167,001 – $200,000 | $295.90 | $57.00 | $4,235 / yr |
| $200,001 – $500,000 | $406.90 | $78.60 | $5,827 / yr |
| > $500,000 | $443.90 | $85.80 | $6,357 / yr |
2025 IRMAA Thresholds — Married Filing Jointly
| Modified MAGI — Married Filing Jointly | Part B / mo | Part D / mo | Annual Surcharge |
|---|---|---|---|
| ≤ $212,000 | None | None | None |
| $212,001 – $266,000 | $74.00 | $13.70 | $2,124 / yr |
| $266,001 – $334,000 | $185.00 | $35.30 | $5,286 / yr |
| $334,001 – $400,000 | $295.90 | $57.00 | $8,471 / yr |
| $400,001 – $750,000 | $406.90 | $78.60 | $11,654 / yr |
| > $750,000 | $443.90 | $85.80 | $12,713 / yr |
Note: The annual surcharge column for married filers reflects both spouses combined if both are on Medicare. IRMAA is assessed per person — a married couple where both are enrolled each pay the surcharge independently.
The First Payment: A Preventable Hit
If you defer the first buyback payment into your 403(b) and/or 457(b), it is removed from your taxable income entirely. It does not appear on your W-2 as wages. It does not enter your Modified MAGI. Medicare never sees it.
Two years later, when Medicare looks back at your retirement year income, the deferred buyback is absent. Your IRMAA calculation is based on your other retirement income — pension, Social Security, investment income — without the buyback inflating it.
This is the simplest and most complete solution available. The accounts must be open before you submit retirement paperwork. That is the only requirement.
Need to open a 403(b) or 457(b) before you retire? Contact Tim to get started →
The Second Payment: No Deferral Option
The second payment arrives the year after you retire. There is no mechanism to defer it. It is ordinary taxable income and it will be included in your Modified MAGI for the year you receive it.
Whether it triggers an IRMAA surcharge depends entirely on what your other income looks like that year. For a retiree living primarily on a pension and Social Security, the second payment may push Modified MAGI over a threshold it would not otherwise reach. For a high earner already above the top tier from other income, it adds to a surcharge that was coming regardless.
The question is whether the bump is temporary — a one-time payment on top of an income level that is otherwise lower in retirement — and whether that fact can be used to reduce the surcharge.
The SSA-44: Challenging a Surcharge Based on a Life Change
Medicare's two-year lookback creates a specific injustice for retirees: you are being charged a premium surcharge based on income you no longer earn. The IRS rule that governs IRMAA allows for an appeal when a life-changing event has caused your income to drop significantly since the lookback year.
Retirement is a qualifying life-changing event under SSA rules. If you retired after the lookback year and your current income is substantially lower, you can file Form SSA-44 to ask Medicare to use a more recent income estimate instead of the two-year-old tax return.
What SSA-44 does: It allows you to report your current or estimated income and ask Social Security to recalculate your IRMAA based on that figure rather than the lookback year. If approved, your surcharge is reduced or eliminated going forward.
What qualifies: Retirement is explicitly listed as a qualifying life-changing event. You will need to document your current expected income — pension statements, Social Security benefit letters, and any other ongoing income sources.
What it cannot do: SSA-44 addresses your current income going forward. It does not retroactively eliminate a surcharge you already paid. Filing promptly after you receive the IRMAA determination notice matters.
For a BPS retiree whose second buyback payment inflated their Modified MAGI in the year after retirement — while their ongoing income is substantially lower — SSA-44 is the appropriate remedy. The spike was real but it was not representative of your retirement income. That is precisely the situation the form is designed to address.
The Double Hit Scenario
A BPS employee who retires without deferring the first payment faces two separate IRMAA exposure windows.
- Year of retirement: First buyback payment hits Modified MAGI — IRMAA surcharge follows two years later
- Year after retirement: Second buyback payment hits Modified MAGI — IRMAA surcharge follows two years after that
Depending on when you retire and when you go on Medicare, both lookback years may fall within your Medicare coverage period — meaning you pay elevated premiums for two separate years based on income from your final working and first retirement years.
Defer the first payment and that first exposure window closes entirely. File SSA-44 for the second payment year and the second window may be reduced or eliminated if your ongoing retirement income is demonstrably lower.
The combination of deferral and SSA-44 is the complete answer to what would otherwise be a two-year Medicare surcharge on income you earned once and will never see again.
What to Do and When
- Open your 403(b) and/or 457(b) while still employed — before submitting any retirement paperwork
- Calculate your maximum deferral across both plans including catch-up contributions
- Coordinate with BPS Payroll to direct the first buyback payment into your retirement accounts
- In the year you receive the second payment, calculate your Modified MAGI for that year
- If the second payment pushes you over an IRMAA threshold and your ongoing income is lower, file SSA-44 promptly after receiving your IRMAA determination
- Bring pension statements, Social Security benefit letters, and documentation of your current income to support the SSA-44 filing
The window to act on the first payment closes when you submit your retirement paperwork. Everything else can be addressed after the fact — but the deferral accounts must exist first.
Questions about deferral, IRMAA, or SSA-44? Schedule a consultation with Tim →
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Tim Hayes is an independent fiduciary financial advisor specializing in retirement planning for Massachusetts public employees and educators. 30+ years advising clients. These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.