How Working in Retirement Can Affect Your Social Security and Medicare

Not everyone stops working completely when they retire.

In fact, about one in five retirees keeps working in some way, according to a 2022 T. Rowe Price study. For many, that extra work provides structure, purpose, and—just as importantly—a financial boost.

But when you combine income from work with Social Security and Medicare benefits, things can get a little more complicated. Earnings in retirement may affect how much of your Social Security is taxed and what you pay in Medicare premiums. While these changes don’t impact everyone, it’s smart to know the rules before you make decisions.

Let’s take a look.

Medicare and Working in Retirement

When you leave employer-based health insurance behind, Medicare becomes your main coverage starting at age 65 (or later if you delay and qualify for a special enrollment period). Here’s how the different parts work if you’re still earning income:

• Part A (Hospital Coverage): Free for most people, as long as you or your spouse worked and paid Medicare taxes for about 10 years. Your retirement income won’t change that.

• Part B (Doctor Visits) and Part D (Prescriptions): These require monthly premiums. Most people pay the standard amount, but if your income is above certain thresholds, you’ll pay extra through what’s called an Income-Related Monthly Adjustment Amount (IRMAA).

Here’s where work income matters—Medicare looks at your tax return from two years prior. That means if you just retired, your premiums may still reflect your higher, pre-retirement earnings.

If your income has since dropped, you can file an SSA-44 form with Social Security to have your premiums adjusted. For most people, part-time earnings in retirement won’t push them into higher premium brackets—but it can for high earners.

Social Security and Taxes

More than half of retirees pay some federal tax on their Social Security benefits. Whether you do depends on your combined income—a number the IRS calculates by adding:

• Your adjusted gross income (wages, pensions, investments)

• Any tax-exempt interest

• Half of your Social Security benefits

Here are the thresholds:

• Single filers:

  • Under $25,000 → no tax

  • $25,000–$34,000 → up to 50% taxable

  • Over $34,000 → up to 85% taxable

• Married filing jointly:

  • Under $32,000 → no tax

  • $32,000–$44,000 → up to 50% taxable

  • Over $44,000 → up to 85% taxable

Earnings from part-time work can add to your combined income and potentially push more of your Social Security into the taxable range. That said, for many retirees with moderate incomes, working a bit on the side won’t make a big difference.

Other Factors to Keep in Mind

• State Taxes: Nine states tax Social Security benefits (including Colorado, Connecticut, and Minnesota). Rules vary, so check your state’s guidelines.

• New Federal Deduction: Starting in 2025, seniors 65+ can claim an extra deduction of up to $6,000. It phases out at higher incomes but will help offset some taxes through 2028.

• Potential Changes Ahead: There’s ongoing discussion in Congress about eliminating federal taxes on Social Security altogether. While not yet law, it’s something to watch.

For most retirees, working part-time won’t drastically change Social Security or Medicare. But if you’re a higher earner, your extra income could mean higher Medicare premiums and more taxable Social Security.

The key is planning. Keep an eye on your total income from work, retirement accounts, and investments. Be strategic about withdrawals, and make sure you’re taking advantage of deductions available to you. And if things feel complicated, don’t hesitate to reach out!

Will