How Does Employment Affect Your Social Security or Medicare?
Navigate the complex relationship between your work and how it shapes your Social Security and Medicare benefits and costs.
Employment income and history significantly influence both Social Security and Medicare benefits. Understanding how current and past work affects these programs is complex, impacting eligibility, benefit amounts, and premium costs. Navigating these interactions is important for financial planning.
Your Social Security Retirement Benefit Foundation
An individual’s employment history lays the groundwork for their Social Security retirement benefits, which are based on contributions made through work over a lifetime. Building a sufficient work record is essential for securing these benefits.
Eligibility for Social Security retirement benefits is determined by earning Social Security credits. These credits are earned through employment or self-employment income. In 2025, an individual earns one credit for each $1,810 of wages or self-employment income, up to a maximum of four credits per year. Most individuals need 40 credits, equivalent to 10 years of work, to qualify for retirement benefits.
Once sufficient credits are accumulated, the Social Security Administration (SSA) calculates an individual’s benefit amount, known as the Primary Insurance Amount (PIA). This calculation considers the highest 35 years of an individual’s indexed earnings. Past earnings are “indexed” to account for changes in average wages over time, ensuring earlier earnings reflect current value. These indexed earnings form the basis for the monthly benefit.
Working While Receiving Social Security
Continuing to work while receiving Social Security retirement benefits can directly affect the amount of benefits an individual receives, especially if they are below their Full Retirement Age (FRA). The Social Security Administration implements rules to manage this.
The Retirement Earnings Test (RET) applies to individuals who claim Social Security benefits before reaching their FRA. For those under their FRA, $1 in benefits is withheld for every $2 earned above an annual limit ($23,400 in 2025). A higher limit ($62,160 in 2025) applies for the months prior to reaching FRA in the year an individual attains their FRA, where $1 in benefits is withheld for every $3 earned above this limit.
Once an individual reaches their Full Retirement Age, the Retirement Earnings Test no longer applies, with no limit on earnings affecting their Social Security benefits. Any benefits withheld due to the earnings test before reaching FRA are not permanently lost; the SSA recalculates the benefit amount at FRA, resulting in a higher monthly payment. Working longer can also lead to increased benefits through Delayed Retirement Credits (DRCs). For each month an individual delays claiming benefits past their FRA, up to age 70, their monthly benefit amount increases by a certain percentage. This offers an incentive for those who continue working to postpone claiming benefits.
Earned income from current employment, when combined with other income sources, can make a portion of Social Security benefits subject to federal income tax. For a single filer, up to 50% of benefits may be taxed if combined income is between $25,000 and $34,000, and up to 85% if combined income exceeds $34,000. For those filing jointly, these thresholds are between $32,000 and $44,000 for up to 50% taxation, and above $44,000 for up to 85% taxation. Combined income for this purpose includes adjusted gross income, tax-exempt interest, and one-half of Social Security benefits.
Medicare and Employment Before Retirement
Prior to fully retiring, an individual’s employment status plays a role in determining Medicare eligibility, enrollment timing, and how Medicare coordinates with employer-sponsored health coverage. Understanding these interactions helps in making informed healthcare decisions.
Most individuals qualify for premium-free Medicare Part A (Hospital Insurance) by working and paying Medicare taxes for at least 10 years. Eligibility can also be established through a spouse’s work record. This work history is required for premium-free Part A.
For those not actively working past age 65, the Initial Enrollment Period (IEP) is the standard window to enroll in Medicare. This seven-month period begins three months before an individual’s 65th birthday, includes the birth month, and extends for three months afterward. However, if an individual continues working past age 65 and has health coverage through their employer or their spouse’s employer, they may qualify for a Special Enrollment Period (SEP). This SEP allows them to delay enrolling in Medicare Part B (Medical Insurance) without incurring late enrollment penalties, provided the employer health plan is based on current employment. The SEP typically lasts for eight months after the employment ends or the employer-sponsored health coverage terminates, whichever comes first.
The coordination between Medicare and employer health plans depends on the size of the employer. If the employer has 20 or more employees, the employer’s group health plan is generally the primary payer, and Medicare acts as the secondary payer. Conversely, if the employer has fewer than 20 employees, Medicare usually becomes the primary payer. Individuals with credible employer coverage must weigh whether to enroll in Medicare at age 65 or defer enrollment, considering factors such as the cost of their employer plan, the scope of its coverage, and potential out-of-pocket expenses.
Income-Related Medicare Premiums
An individual’s income can directly influence the cost of their Medicare Part B and Part D premiums. This impact is managed through a mechanism known as the Income-Related Monthly Adjustment Amount (IRMAA).
IRMAA is an additional amount that certain individuals must pay on top of their standard Medicare Part B and Part D premiums. This surcharge applies to those with higher incomes. The Social Security Administration determines whether IRMAA applies and the amount of the surcharge based on the Modified Adjusted Gross Income (MAGI) reported on an individual’s federal tax return from two years prior. For instance, the IRMAA for 2025 Medicare premiums would be based on income reported on a 2023 tax return.
The IRMAA system uses a tiered structure, where different income brackets trigger increasingly higher surcharges. The principle remains that as MAGI rises, the additional premium amount also increases. Employment income contributes directly to an individual’s MAGI, making it a primary factor in determining potential IRMAA liability.
If an individual’s income significantly decreases due to specific life-changing events, they may be able to request a new IRMAA determination. Qualifying events often include situations such as work stoppage, work reduction, divorce or annulment, or the death of a spouse. This appeal process allows for an adjustment to Medicare premiums based on current financial circumstances rather than outdated income data.