August 28, 2026
4:06 am

Settlement Proceeds and Next Year’s Medicare Premiums

Medicare’s income-related premium surcharge is based on your tax return from two years earlier, so a settlement that closes in 2026 shows up on your 2028 premiums — and a one-time capital gain is not one of the life-changing events that lets you ask Social Security to disregard it. That combination is why families are blindsided: the bill arrives two years after the money is gone, and the usual appeal form does not fit.

The surcharge is called the income-related monthly adjustment amount, or IRMAA, and it applies to both Part B and Part D. It is a cliff, not a slope: one dollar over a threshold moves you into the full next tier for the entire year. For a married couple both on Medicare, the surcharge applies to each of them, so the household cost is doubled.

What follows walks the failure modes in order of how often they actually happen, with the prevention for each. Every figure is stamped as of 2026 and must be confirmed with the Social Security Administration or Medicare, because the thresholds and premiums are reset every year. Pine Lake Legacy provides education and a free policy review only, and does not give tax or benefits advice — ask your own CPA before a transaction closes.

In This Article

The Baseline Numbers You Are Working Against
Failure Mode 1 — Not Knowing About the Two-Year Lag (Most Common by Far)
Failure Mode 2 — Assuming Form SSA-44 Will Fix It
Failure Mode 3 — Missing the 60-Day Reconsideration Window
Failure Mode 4 — Forgetting the Part D Surcharge and the Doubling for Couples
Failure Mode 5 — Losing the Benefits That Were Worth More Than the Gain
Failure Mode 6 — Selling When It Was the Wrong Answer Anyway
Frequently Asked Questions

Settlement Proceeds and Next Year's Medicare Premiums

The Baseline Numbers You Are Working Against

For 2026, the standard Part B premium was announced at $202.90 a month with an annual deductible of $283, up from $185.00 and $257 for 2025. The first IRMAA tier for 2026 begins above modified adjusted gross income of $109,000 for an individual filing single and $218,000 for a married couple filing jointly, based on the 2024 tax return. The thresholds are adjusted annually. Confirm all of these with the Social Security Administration or at Medicare.gov before you rely on them; they are republished every autumn and this is exactly the kind of figure that is right when written and wrong a year later.

The structure to hold in your head:

IRMAA is determined from modified adjusted gross income, which is adjusted gross income plus tax-exempt interest. Municipal bond interest counts, which surprises people.
It uses the return from two years before the premium year.
There are several tiers, and each adds a fixed dollar amount to both the Part B and the Part D premium.
It is assessed per beneficiary, so a married couple both on Medicare pay it twice.
It applies for one year and then resets based on the next return, assuming income returns to normal.

A settlement large enough to push a household two tiers can cost several thousand dollars across a year for a couple. That is a real number and it is entirely foreseeable.

Failure Mode 1 — Not Knowing About the Two-Year Lag (Most Common by Far)

A household closes a settlement in March 2026, spends the money on care through 2026 and 2027, and then receives a Social Security notice in late 2027 saying their 2028 premiums will be higher. The money is gone. The surcharge is not.

Prevention: before the transaction closes, ask your CPA to run the projected modified adjusted gross income for the year of sale and to tell you which IRMAA tier it lands in for two years later, and what that costs per person per month. Write the total on the same page as the offer. Then, if the transaction still makes sense, set the money aside for it in advance.

The related timing decision: whether a settlement closes in December or January can move the entire surcharge by a year, and in some cases can split gains across two tax years if the structure permits it. This is a conversation to have with a CPA before signing, not a reason to delay urgent care funding. Do not let a tax tail wag a care dog.

What the notice looks like: Social Security sends an initial IRMAA determination notice, usually in November or December, stating the premium for the coming year and the tax year it was based on. Read it the day it arrives. Everything below depends on that date.

Failure Mode 2 — Assuming Form SSA-44 Will Fix It

This is the second most common failure and it is the most disappointing, because households learn about the form and assume it is the answer.

Form SSA-44, “Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event,” lets a beneficiary ask Social Security to use a more recent tax year when a qualifying life-changing event has reduced their income. The events the form recognizes are specific: marriage; divorce or annulment; death of a spouse; work stoppage; work reduction; loss of income-producing property due to a disaster or other event beyond your control; loss of pension income; and receipt of an employer settlement payment due to the employer’s closure or bankruptcy.

A one-time capital gain from selling an asset is not on that list. Selling a life insurance policy, a house, or a stock portfolio is not a life-changing event for this purpose, and an SSA-44 filed on that basis will be denied.

Prevention: stop planning around SSA-44 for this situation. If a genuine qualifying event happened in the same period — a spouse died, a job ended, a pension stopped — then file SSA-44 promptly with documentation, and do it on the basis of that event rather than the gain.

Where SSA-44 does help settlement households: the year after the gain. If the surcharge year is 2028 and your income returned to normal in 2027, Social Security should use the 2027 return for 2029 automatically. If a qualifying life-changing event also occurred, the form can accelerate that correction.

Failure mode	How often	Prevention	Deadline
Not knowing about the two-year lag	Most common	Have a CPA project the tier before closing	Before the transaction
Assuming Form SSA-44 fixes a capital gain	Very common	Know the eight qualifying life-changing events	N/A – a gain does not qualify
Missing the reconsideration window	Common	Calendar the date the notice arrives	60 days from receipt, Form SSA-561
Forgetting Part D IRMAA and the per-person doubling	Common	Multiply by 12 and by the number of beneficiaries	Before the transaction
Losing Extra Help or a Medicare Savings Program	Less common, most costly	SHIP screening before any sale	Report within about 10 days
Selling when the policy should have been kept	Underdiagnosed	Compare keep, reduce, surrender, and sell	Before signing anything

Failure Mode 2 — Assuming Form SSA-44 Will Fix It

Failure Mode 3 — Missing the 60-Day Reconsideration Window

An IRMAA determination can be appealed, and the deadline is short.

To challenge the determination itself — for example because the IRS data used was wrong, because an amended return changed the figure, or because the return used was not the right one — file a request for reconsideration, generally using Form SSA-561, “Request for Reconsideration.” The window is 60 days from receipt of the notice, and receipt is presumed to be five days after the date on the notice unless you show otherwise. After reconsideration, further appeal levels exist through an administrative law judge and beyond.

Prevention: the day the notice arrives, write the deadline on the notice itself and put it on the calendar. Then decide within a week whether there is a factual basis for reconsideration.

Legitimate bases for reconsideration include: the IRS provided outdated or incorrect information; you filed an amended return for the relevant year; the return used was not yours or reflected a filing status error; or a qualifying life-changing event occurred, in which case SSA-44 is the right vehicle. “The gain was one-time and unfair” is not a basis and will be denied.

If you do file an amended return that reduces the relevant year’s income, send Social Security a copy of the amended return and the IRS receipt or transcript. Documentation from the IRS is what moves these decisions.

Failure Mode 4 — Forgetting the Part D Surcharge and the Doubling for Couples

Households budget for the Part B increase and are surprised twice.

Part D IRMAA. The same income determination adds a surcharge to the Part D premium, paid in addition to whatever the drug plan charges. It applies whether the drug coverage is a standalone Part D plan or is included in a Medicare Advantage plan. It is usually billed separately from the plan premium, often deducted from the Social Security payment, which is why people do not connect it to the same cause.

Per-beneficiary assessment. Both spouses on Medicare each pay the surcharge based on the same joint return. Two people, two Part B surcharges, two Part D surcharges — four line items from one tax return. When a CPA quotes you the cost of an IRMAA tier, ask specifically whether the quote is per person or per household.

Prevention: when you model the cost, multiply. Take the Part B surcharge plus the Part D surcharge, multiply by twelve months, then multiply by the number of Medicare beneficiaries in the household. That is the number to compare against the benefit of the transaction.

One more: a household paying a Medigap premium alongside all of this should also review whether the Medigap plan still fits, because the annual review that happens during the Medicare Annual Enrollment Period, October 15 through December 7, is free and a SHIP counselor will do it with you.

Failure Mode 5 — Losing the Benefits That Were Worth More Than the Gain

This is the least common failure but the most expensive when it happens, because it hits lower-income households.

A household receiving a Medicare Savings Program has its Part B premium paid by the state Medicaid program, and a household receiving Extra Help pays only a few dollars per prescription. Both are resource-tested as well as income-tested. A lump sum that pushes countable resources above the limit can end both, converting a household that paid essentially nothing for Medicare into one paying the full premium plus drug costs. The Social Security Administration has estimated Extra Help’s average annual value at roughly $6,000 per beneficiary.

Prevention: before any transaction, ask the state SHIP to screen the household for a Medicare Savings Program and Extra Help, and ask the state Medicaid agency what the current resource limits are. If the household currently receives either, the arithmetic on selling anything changes completely, and the correct answer is frequently to do nothing.

Report on time. Resource changes must be reported to the Social Security Administration and to the state, generally within a short window commonly around 10 days. Read how proceeds affect SSI and how they affect SNAP, and report to each program separately.

Do not give money away to stay under a limit. Gifts are examined by every one of these programs and by Medicaid’s transfer rules. See what happens when proceeds are gifted.

Failure Mode 6 — Selling When It Was the Wrong Answer Anyway

Everything above assumes the transaction should happen. Frequently it should not.

Selling is the wrong answer when the face amount is under roughly $100,000, because the secondary market generally will not bid and the household spends months for nothing.

When the policy is a burial or final-expense policy already inside a benefit exclusion, because converting an excluded asset to countable cash can cost Extra Help, a Medicare Savings Program, or Medicaid — benefits worth thousands a year against a one-time payment.

When the insured is in good health for their age, which lengthens projected life expectancy and shrinks offers.

When a surviving spouse needs the death benefit. A widow’s income drops when one Social Security check stops, and her tax filing status changes to single, which cuts the IRMAA thresholds roughly in half — an effect sometimes called the widow’s penalty. That is a reason to keep coverage, not to sell it.

When the real problem is an unaffordable premium. Then the menu is wider than sell-or-lapse: keep paying, reduce the face amount, elect reduced paid-up coverage, take a policy loan, use an accelerated death benefit rider if one exists and the insured qualifies, or surrender. Work through the alternatives to stopping premiums and how lapse, surrender, and settlement compare before assuming a sale is best.

If you want an objective read before the decision, a free policy review takes only the cover page and a current premium notice — (732) 978-9575. Bring the IRMAA number your CPA calculated to that conversation; it belongs in the comparison.

Frequently Asked Questions

Why is my Medicare premium going up two years after I sold a policy?

The income-related monthly adjustment amount is calculated from your modified adjusted gross income on the tax return filed two years earlier. A gain realized in 2026 is reflected in 2028 premiums. It applies for that one year and then resets, provided your income returns to its prior level.

Can I use Form SSA-44 to undo the surcharge?

Not for a one-time capital gain. SSA-44 applies only to eight specific life-changing events: marriage, divorce or annulment, death of a spouse, work stoppage, work reduction, loss of income-producing property, loss of pension income, and an employer settlement payment. Selling an asset is not among them and such a filing will be denied.

How do I appeal an IRMAA determination?

File a request for reconsideration, generally on Form SSA-561, within 60 days of receiving the determination notice. Legitimate bases include incorrect or outdated IRS data, an amended return, or a filing status error. Attach IRS documentation, because that is what moves these decisions. Further appeal levels exist after reconsideration.

Does the surcharge apply to both spouses?

Yes, if both are Medicare beneficiaries. IRMAA is assessed per beneficiary using the same joint return, and it applies to both Part B and Part D. That means one tax year can generate four separate surcharge line items for a couple. Multiply accordingly when you model the cost of a transaction.

Could a lump sum cost me Extra Help or a Medicare Savings Program?

Yes, and that is often the largest risk. Both programs are resource-tested as well as income-tested, and Extra Help alone has been estimated by the Social Security Administration at an average value of roughly $6,000 a year. Ask a SHIP counselor to screen your household before any transaction closes.

Should the timing of a sale be planned around IRMAA?

It is worth a conversation with your CPA, since closing in December versus January shifts the surcharge year and sometimes splits gains across tax years. But do not delay funding urgent care to manage a premium surcharge. Model the total cost, then decide whether the transaction still makes sense.

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