Medicare for Business Owners: S-Corp, Partnership & Solo IRMAA Planning

Business owners approaching Medicare often discover that the structure designed to minimize their tax burden does nothing to reduce their Medicare surcharges — and that the retirement plans, income timing decisions, and sale-year planning they haven't yet done are their last real opportunity to control what Medicare costs them for the rest of their lives. IRMAA surcharges can reach $13,872/year for a couple with business income in the highest tier, and the two-year look-back means the window to act is narrower than most owners realize.

How business income flows into IRMAA MAGI

IRMAA MAGI equals your Adjusted Gross Income (Form 1040, Line 11) plus tax-exempt interest (Line 2a). Every common business ownership structure funnels income into that Line 11 — but through different channels, with different planning levers.¹

The QBI misconception: why Section 199A doesn't reduce your Medicare premiums

This is one of the most consequential IRMAA planning errors among business owners. The Section 199A qualified business income deduction saves eligible owners up to 20% of qualified business income in federal income tax — but it does nothing for IRMAA.

Here's why: Section 199A is a "below-the-line" deduction. It appears on Form 1040, Line 13 — after AGI is already calculated on Line 11. IRMAA uses Line 11 (plus tax-exempt interest) as its MAGI base. The QBI deduction never enters the IRMAA calculation.¹

An S-corp owner with $350,000 in business income:

• Takes a $70,000 Section 199A deduction → saves $15,400 in federal income tax at the 22% bracket
• Has IRMAA MAGI of $350,000 → Tier 4 ($205K–$500K), extra surcharge of $6,355/year per person
• The $70,000 QBI deduction did not move a dollar of the MAGI below $205,000

The only above-the-line deductions that actually reduce IRMAA MAGI are: pre-tax retirement plan contributions, the self-employed health insurance deduction (SEHID), the SE tax deduction, and standard AGI-reducing items like alimony (pre-2019 divorces) and student loan interest. Section 199A is not one of them.

S-corp salary optimization and IRMAA

S-corp owners often structure their compensation to minimize FICA tax exposure: pay a "reasonable" W-2 salary and take the rest as pass-through distributions. For IRMAA purposes, this doesn't help — both the W-2 salary and the K-1 pass-through income count toward MAGI equally.

What it does affect is the retirement plan contribution capacity. Your ability to make pre-tax contributions is tied to W-2 compensation:

• Employee 401(k) deferral: based on W-2 wages (up to $24,500 in 2026, $35,750 at ages 60–63)³
• Employer profit-sharing: up to 25% of W-2 wages, subject to the $72,000 combined limit
• Cash balance plan contributions: also tied to W-2 compensation

This creates a planning tradeoff: an S-corp owner with a $60,000 W-2 salary can contribute far less to a retirement plan than one with a $200,000 W-2 — even if both owners have $400,000 in total business income. Business owners who set very low salaries to avoid FICA often discover at age 60 that their retirement plan capacity is severely limited, just when IRMAA planning matters most. The cost of low W-2 compensation — lost retirement contribution capacity — can exceed the FICA savings over a 10-year retirement horizon.

The most powerful IRMAA tools for business owners

Solo 401(k) — the baseline for sole proprietors and partners

A solo 401(k) allows both an employee deferral and an employer profit-sharing contribution. In 2026:³

• Employee deferral: $24,500 (or $32,500 at ages 50–59 and 64+, or $35,750 at ages 60–63)
• Employer profit-sharing: 25% of net self-employment compensation (after SE tax deduction)
• Combined maximum: $72,000
• SEP-IRA maximum (simpler alternative): 25% of net compensation, up to $72,000

A 62-year-old sole proprietor with $250,000 in Schedule C net income, electing $72,000 in solo 401(k) contributions, reduces MAGI by $72,000 — potentially dropping from Tier 2 ($2,885 extra/year) to no surcharge, saving $2,885/year in Medicare premiums plus the federal income tax savings on the contribution.

Cash balance plan — the multiplier for high earners

A cash balance plan is a defined-benefit plan that sets a target retirement account balance, funded annually by actuarially determined contributions. For business owners in their 50s and 60s, these contributions can dwarf what a solo 401(k) allows:⁴

• The IRS annual benefit limit for defined-benefit plans is $290,000 in 2026
• To fund that benefit level starting at age 60, annual contributions typically range from $150,000–$280,000 per year, depending on years to retirement and assumed crediting rate
• A cash balance plan can be stacked on top of a solo 401(k) — the two plans have separate limits
• Combined MAGI reduction potential at age 60–63: $220,000–$350,000 per year

Cash balance plans require an actuary and a third-party administrator (typically $2,000–$5,000 setup, $3,000–$6,000/year ongoing). For business owners making $300,000 or more and within 10 years of retirement, the IRMAA savings alone typically exceed the plan administration costs within 1–2 years — before accounting for income tax savings on the contributions.

Self-Employed Health Insurance Deduction (SEHID) — an often-missed MAGI reducer

Under IRC §162(l), self-employed individuals — including sole proprietors, partners, and S-corp owners (when properly structured) — can deduct 100% of health insurance premiums as an above-the-line adjustment. This does reduce AGI and IRMAA MAGI.¹

Qualifying premiums for the §162(l) deduction include:

• Medicare Part B premium ($202.90–$689.90/month depending on IRMAA tier)
• Medicare Part D premium
• Medicare Advantage plan premiums
• Medigap supplement premiums — these qualify under §162(l) for self-employed individuals, even though they cannot be paid from an HSA

An S-corp owner paying Tier 2 Part B ($284.10/month, or $3,409/year) plus Medigap Plan G ($200/month, $2,400/year) can deduct $5,809 through SEHID. At the 37% federal bracket, the after-tax cost of these premiums is reduced by $2,149 — and the MAGI reduction can prevent the income from crossing the next IRMAA threshold, generating additional savings.

For S-corp owners: the S-corp must pay (or reimburse) the premiums and include them in Box 1 W-2 wages. The owner then claims the §162(l) deduction on Schedule 1, Line 17 of Form 1040. The W-2 inclusion does not increase FICA liability on these amounts.

The two-year look-back trap for business owners

IRMAA is based on your income from two years ago. Your 2026 Medicare premiums are based on your 2024 MAGI. This creates a specific trap for business owners:

• Age 63 in 2024, Medicare at 65 in 2026: Your 2024 business income sets your 2026 premiums. If you're still running the business at full capacity in your final two working years, you're in the look-back years that matter most — and can still do something about it through retirement plan contributions.
• Selling the business in 2024: A $800,000 net gain from a business sale in 2024 enters 2024 MAGI and creates IRMAA surcharges in 2026 — even though by 2026 you're fully retired with minimal other income. SSA-44 does not apply to asset sale income (it's not a qualifying life-changing event). See business sale and IRMAA for installment sale options.
• Final working year spike: Business owners often earn their highest income in their last few years as the practice or company matures. A single high-income year at age 62 can generate above-baseline IRMAA surcharges for two full years after Medicare enrollment at 65.

Estimate your business-owner IRMAA

Enter your business income and planned deductions to see your estimated IRMAA tier and annual Medicare cost. Uses 2026 brackets based on 2024 MAGI.

5 strategies for business owners to reduce IRMAA

1. Establish a cash balance plan in the 3–7 years before Medicare enrollment. This is the highest-leverage move available to business owners with substantial income. A business owner age 57 who establishes a cash balance plan can make cumulative pre-tax contributions of $600,000–$1,500,000 before retirement, shrinking the MAGI in each of the two IRMAA look-back years significantly. The plan must be set up before December 31 of the year you want to deduct contributions. Waiting until age 63 or 64 leaves only 1–2 years of high-contribution capacity. See the physician guide for detailed cash balance plan contribution examples by age.

2. Deduct Medicare and Medigap premiums under §162(l) — don't overlook SEHID. Many business owners deduct their group health insurance premiums during working years but fail to deduct Medicare Part B, Part D, and Medigap premiums after enrolling at 65. These premiums qualify for the self-employed health insurance deduction as long as you have net profit from the business and are not eligible for employer-sponsored coverage through a spouse. Deducting $5,000–$9,000/year in Medicare premiums won't by itself prevent an IRMAA tier, but stacked with retirement plan contributions, it helps close the gap to a lower threshold.

3. Time the business exit to avoid peak look-back years. The two-year look-back means that income earned two years before Medicare enrollment sets your premiums in your first year on Medicare. A business owner who sells in 2024 and enrolls in Medicare at 65 in 2026 will pay 2026 IRMAA surcharges on that sale gain — with no SSA-44 appeal option. If the timing is flexible, selling in the year you turn 65 (so the income hits MAGI in your Medicare enrollment year, which only affects premiums two years later when you're already enrolled) is better than selling at 63 or 64. An installment sale under IRC §453 spreads the gain across multiple years, reducing the peak MAGI in any single look-back year. See business sale and IRMAA for the full analysis.

4. Use QCDs from traditional IRAs at age 70½+. Business owners who have accumulated significant traditional IRA or SEP-IRA balances face mandatory RMDs at age 73. If you're charitably inclined, qualified charitable distributions bypass AGI entirely — up to $111,000/year per person in 2026.⁵ A business owner with $2M in IRAs who also has ongoing business income faces MAGI that compounds quickly when RMDs begin. Redirecting charitable giving through QCDs instead of cash can reduce MAGI by $80,000–$111,000 per year, potentially dropping from Tier 3 to Tier 1 — saving $3,472/year per person. See IRMAA reduction strategies for the full QCD analysis.

5. File SSA-44 when you retire from the business. If you genuinely retire from active business operations and your income drops substantially in your Medicare enrollment year, retirement is a qualifying life-changing event. SSA will use a current-year income estimate instead of the two-years-ago peak business income year. A business owner who earned $500,000 in 2024, sold or wound down operations in 2025, and has only $75,000 in investment income in 2026 can file SSA-44 to avoid Tier 4 surcharges based on the $500,000 figure. Important: continuing to receive partnership payments, deferred compensation, or installment sale proceeds in 2026 may still keep MAGI elevated despite "retiring." See IRMAA appeal guide for the SSA-44 process and qualifying events.

Working past 65 as an active business owner

If you are still actively running your business past age 65, you may be able to delay Medicare Part B enrollment without penalty — but only if you qualify under the employer-group-plan exception. The exception requires:

• Active employment at a business with 20 or more employees (counting all employees in the controlled group), and
• Active, employer-sponsored group health coverage — not COBRA, not retiree coverage, not marketplace coverage

A sole proprietor who buys their own health insurance through the ACA marketplace does not qualify for the delayed enrollment exception. You must enroll in Part B by the end of your 7-month Initial Enrollment Period or face a permanent 10%/year late enrollment penalty. See Medicare while still working for the employee-count rules and the 8-month SEP window.

HSA trap for owner-employees: If you are contributing to an HSA through a high-deductible health plan purchased for your business, enrolling in Medicare Part A — even if only Part A — retroactively disqualifies your HSA contributions for up to 6 months. Many business owners who file for Social Security retirement benefits at age 65 are automatically enrolled in Medicare Part A without realizing the HSA consequence. See Medicare and HSA rules for the full retroactive enrollment trap.

Sources

1. IRS Form 1040 Instructions (2024): IRMAA MAGI = AGI (Line 11) + tax-exempt interest (Line 2a). Section 199A qualified business income deduction appears on Line 13 (after AGI); it does not reduce IRMAA MAGI. Self-employed health insurance deduction (IRC §162(l)) is a Schedule 1 above-the-line deduction, reduces AGI and IRMAA MAGI. Verified June 2026.
2. IRS Rev. Proc. 2025-67 — 2026 Inflation Adjustments: Solo 401(k) employee deferral $24,500; catch-up (ages 50–59, 64+) $8,000; SECURE 2.0 super catch-up (ages 60–63) $11,250; IRC §415(c) annual additions limit $72,000; SEP-IRA limit $72,000; compensation limit $360,000. QSBS §1202 exclusion raised to $15M under OBBBA (July 2025) — applies to C-corp qualified small business stock held 5 years (3/4/5-year tiers at 50%/75%/100% under OBBBA).
3. IRS — One-Participant 401(k) Plans: Solo 401(k) contribution rules — both employee deferral and employer profit-sharing components; interaction with SEP-IRA and cash balance plans for business owners; $72,000 combined limit for 2026 per IRS Rev. Proc. 2025-67.
4. IRS — Defined Benefit Plan Benefit Limits: Maximum annual benefit $290,000 for 2026 under IRC §415(b)(1)(A); compensation limit $360,000. Cash balance plan contributions are actuarially determined; they are not separately capped but must comply with the annual benefit limit, resulting in age-dependent annual contribution amounts typically ranging from $100,000–$280,000 for participants aged 55–65.
5. IRS — Qualified Charitable Distributions (IRC §408(d)(8)): QCDs from traditional IRAs (age 70½+) excluded from AGI; 2026 annual limit $111,000 per person per IRS Notice 2025-67. QCDs from SEP-IRAs with no further employer contributions also eligible. QCDs are not available from 401(k), 403(b), or partnership plans directly — roll to IRA first. QCDs directly offset IRMAA MAGI, unlike charitable deductions which are below-the-line.

Values verified as of June 2026. IRMAA brackets per SSA POMS HI 01101.020. Retirement plan limits per IRS Rev. Proc. 2025-67. QCD limit per IRS Notice 2025-67. Defined benefit limit per IRC §415(b)(1)(A). Consult a licensed advisor and tax professional for guidance specific to your situation.