Medicare for Self-Employed: Enrollment, the Part B Deduction, and IRMAA Planning

Self-employed people on ACA marketplace plans must enroll in Medicare at 65 — no exceptions. An ACA plan isn't employer group coverage, so there's no Special Enrollment Period protection against late penalties. But the self-employed also get one advantage employees don't: Medicare premiums are deductible as a business expense.

Why self-employed have no "still working" exemption

The Medicare rules that allow employees to delay Part B without penalty require two things: active employment and coverage under a bona fide employer group health plan from an employer with 20 or more employees. The key phrase is "group health plan."

ACA marketplace plans — including comprehensive HDHPs with HSA accounts — are individual health insurance policies. They are not employer group plans. Self-employed sole proprietors, single-member LLC owners, freelancers, and independent contractors who buy coverage on healthcare.gov or a state exchange have individual coverage. Those policies do not trigger the Medicare working exemption, regardless of how much they cost or how comprehensive the coverage is.

The one exception: If you are covered as a dependent on a working spouse's employer group health plan from an employer with 20+ employees, that coverage does protect you from late enrollment penalties. Once your spouse retires or leaves that job, your Medicare Special Enrollment Period opens — 8 months from the date group coverage ends. That SEP is real and protects you from Part B penalty as long as you enroll within the window.

S-corp owners: paying health insurance premiums through your own S-corporation does not create qualifying group coverage. You are the 2%+ shareholder-employee — the plan is established under your business, but it is treated as individual coverage for Medicare purposes. No SEP protection.

Transitioning from ACA to Medicare at 65

Most self-employed people over 60 are on ACA marketplace plans, often a high-deductible health plan (HDHP) paired with an HSA. The transition to Medicare involves three timing issues:

Initial Enrollment Period: get it right

Your IEP is a 7-month window — 3 months before your birthday month, your birthday month, and 3 months after. Enroll during the first 3 months (before your birthday month) and Part B coverage starts the first day of your birthday month. Enroll in your birthday month or afterward and coverage is delayed 1–3 months — meaning a gap between when your ACA plan ends and when Medicare starts.¹

ACA subsidy termination

If you receive premium tax credits on a marketplace plan, those credits are supposed to stop the month you become eligible for Medicare Part A (generally the month you turn 65). Continuing to receive credits after you're Medicare-eligible creates a repayment obligation at tax time. Notify your marketplace and terminate the ACA plan on the date your Medicare coverage begins to avoid an overpayment.

HSA: stop contributions before Medicare starts

If you've been contributing to an HSA through your ACA HDHP, you must stop at least 6 months before enrolling in Part A — because Part A enrollment can be retroactive up to 6 months. Any HSA contributions made during a month you were enrolled in Part A are "excess contributions" subject to a 6% excise tax plus income tax. See our Medicare and HSA rules guide for the full retroactive enrollment trap.

The Part B deduction: Medicare premiums as a business expense

Here is one significant advantage that self-employed Medicare enrollees have over W-2 employees: Medicare premiums are deductible as self-employed health insurance under IRC § 162(l).² This deduction is above-the-line — it reduces adjusted gross income (AGI), which also reduces your IRMAA-relevant MAGI.

The deductible premiums include:

• Medicare Part B premiums ($202.90/month base in 2026, up to $689.90/month at the highest IRMAA tier)³
• Medicare Part D premiums (including Part D IRMAA surcharges)
• Medigap (Medicare supplement) policy premiums
• Medicare Advantage plan premiums

The deduction is claimed on Schedule 1 (Form 1040) using Form 7206. It cannot exceed your net self-employment income from the business through which the plan is established, and it's unavailable for any month you or your spouse were eligible for employer-subsidized group health coverage.

W-2 employees have no equivalent. They can deduct Medicare premiums only as itemized medical expenses that exceed 7.5% of AGI — a much higher bar that few retirees clear. Self-employed status gives you a dollar-for-dollar above-the-line deduction instead.

IRMAA risk from self-employment income

High-earning self-employed — consultants, freelancers, S-corp owners, partnership income earners — face significant IRMAA exposure. Net self-employment income flows directly into AGI and MAGI. The two-year look-back means your 2024 income determines 2026 Medicare premiums.

2026 IRMAA surcharges by income tier (based on 2024 MAGI, single filer):³

Year-of-sale IRMAA spike

Self-employed people who sell a business, close a practice, or receive a large partnership distribution often have a one-time income spike in their final year of work. That spike lands in MAGI and drives Medicare premiums two years later — in year one of retirement, when income may be lowest.

If you're planning a business sale, the transaction structure can affect MAGI even when the total tax bill is similar. Asset sales vs. stock sales, installment sales, earnouts, and S-corp election timing all have IRMAA implications worth modeling before the deal closes. An SSA-44 IRMAA appeal is available if your current-year income has since dropped — but it's more powerful as a planning tool than a remediation tool, and it can't reduce premiums below the tier your income actually lands in for the appeal year.

How to reduce MAGI as a self-employed Medicare enrollee

Self-employed individuals have above-the-line deductions that directly reduce IRMAA MAGI. The most powerful:

Solo 401(k) contributions

The solo 401(k) — also called an individual 401(k) or one-participant plan — allows both employee deferrals and employer profit-sharing contributions. For 2026:⁴

For a sole proprietor, the employer profit-sharing contribution is approximately 20% of net self-employment income after the employee deferral and the SE tax deduction (the IRS formula: contribution rate ÷ (1 + contribution rate) applied to net SE income). For an S-corp owner, it's 25% of W-2 wages. Every dollar contributed reduces AGI — and MAGI — dollar-for-dollar.

The plan must be established by December 31 of the tax year, though contributions can be made up to the tax filing deadline (including extensions).

SEP-IRA

The Simplified Employee Pension allows contributions up to 25% of net self-employment income (approximately 20% for sole proprietors after the SE tax adjustment), with a 2026 maximum of $72,000. SEP-IRAs are simpler to administer than solo 401(k)s — no plan document, no annual filing — but have no Roth option and a lower practical ceiling if income isn't high enough to maximize the percentage limit. Like the solo 401(k), SEP contributions are above-the-line deductions that reduce MAGI.

Defined benefit / cash balance plan

For self-employed individuals aged 55–65 with high income and the desire to shelter as much as possible, defined benefit or cash balance plans can allow deductions of $150,000–$300,000+ per year depending on age and plan design. The annual actuarial cost ($2,000–$4,000/year) is offset many times over at high income levels with significant IRMAA exposure. These plans must be established before year-end and require an enrolled actuary.

Self-employed health insurance deduction

As described above: Part B, Part D, and Medigap premiums reduce AGI under § 162(l). This is separate from retirement plan contributions and compounds the MAGI reduction.

What does NOT reduce IRMAA MAGI

The § 199A qualified business income (QBI) deduction — made permanent by the One Big Beautiful Bill Act (OBBBA, July 2025) — reduces taxable income but does not reduce AGI or IRMAA MAGI. The QBI deduction is below-the-line. If your net SE income is $200,000 and your § 199A deduction is $40,000, your taxable income drops by $40,000 — but your MAGI for IRMAA purposes stays at $200,000 (minus any above-the-line deductions). Many self-employed assume QBI planning helps with IRMAA; it does not.

S-corp owners: the W-2 flow-through

Self-employed S-corp owner-shareholders have a different setup for Medicare premiums:

1. The S-corp pays Medicare premiums (Part B, Part D, Medigap) on the shareholder's behalf.
2. Those premiums are included as wages on the shareholder's W-2 (typically in Box 14 and factored into Box 1).
3. The shareholder then claims the § 162(l) deduction on Form 7206 to pull those premiums back out of AGI.

The net result is the same as for sole proprietors — premiums reduce AGI. But the paperwork must be done correctly: if the S-corp does not include Medicare premiums in the shareholder's W-2, the deduction is lost. Some payroll systems miss this, especially when owners add Medicare enrollment mid-year.

S-corp owners also have a planning lever that sole proprietors lack: the split between W-2 wages and pass-through distributions. S-corp distributions are not subject to self-employment tax but do not count as compensation for solo 401(k) profit-sharing contributions. Higher W-2 wages unlock more employer 401(k) contributions. For a 62-year-old S-corp owner earning $300,000 total who wants to maximize MAGI reduction, the optimal wage/distribution split is worth modeling — the extra payroll tax on shifted wages can be more than offset by the IRMAA savings from the larger 401(k) deduction.

Worked example: the consulting firm owner

David is 67, single, still active as a management consultant through a sole proprietorship, and enrolled in Medicare. Net SE income for 2026: $200,000. He wants to know what his 2028 Medicare premiums will look like based on 2026 MAGI, and what he can do about it.

Without planning:

• 2026 MAGI: $200,000 (single filer)
• IRMAA tier: Tier 3 ($171K–$205K): +$4,619/yr in surcharges
• Plus standard Part B: $202.90/mo × 12 = $2,435/yr
• Total Part B annual cost: ~$6,700/yr + Part D

With solo 401(k) and § 162(l) planning:

• Employee deferral (age 67 = 64+ catch-up bracket): $24,500 + $8,000 = $32,500
• Employer profit-sharing (≈20% of net income after deferral and SE tax): ~$30,700
• Total retirement plan deduction: $63,200
• § 162(l) deduction (Part B Tier 3 + Part D + Medigap G): ~$8,000
• 2026 MAGI after deductions: $200,000 − $63,200 − $8,000 = $128,800
• New IRMAA tier: Tier 1 ($109K–$137K): +$1,148/yr

Annual IRMAA savings: $3,471. Plus the $63,200 in retirement contributions grows tax-deferred, and the $8,000 § 162(l) deduction saves an additional ~$2,800 in income tax at a 35% effective rate. A specialist advisor can run these projections forward 5–10 years — as David ages, his RMD from this 401(k) will increase future MAGI, which may argue for partial Roth conversions now while the contributions continue to reduce the account balance.

Decision framework by situation

Sources

1. Medicare.gov: Part A and Part B sign-up periods — Initial Enrollment Period, Special Enrollment Period (active employer group plan requirement), and General Enrollment Period; late enrollment penalty rules (10%/yr permanent for Part B). The "group health plan" must be from current employment.
2. IRS Form 7206: Self-Employed Health Insurance Deduction (IRC § 162(l)) — Covers Medicare Part B, Part D, Medicare Advantage, and Medigap premiums as deductible self-employed health insurance. Above-the-line deduction reducing AGI. Subject to net SE income limit and employer-coverage exclusion.
3. CMS: 2026 Medicare Part B Premium and IRMAA Information — Part B standard premium $202.90/month; IRMAA surcharge tiers by single and MFJ income bracket. Values verified November 2025.
4. IRS: 401(k) limit increases to $24,500 for 2026 (IR-2025-219) — 2026 employee deferral $24,500; catch-up age 50+ (and 64+) $8,000; super catch-up ages 60–63 $11,250; total combined limit $72,000 (base) / $80,000 (catch-up) / $83,250 (super catch-up). Per IRS Notice 2025-67.
5. IRS Notice 2025-67: 2026 retirement plan amounts — QCD limit for 2026: $111,000 per individual (indexed annually under SECURE 2.0 § 307). QCDs satisfy RMDs without being included in AGI/MAGI, reducing IRMAA exposure at age 70½+.

Values verified as of May 2026. IRMAA brackets are adjusted annually by CMS; retirement plan limits are adjusted annually by IRS. Consult a licensed Medicare advisor and CPA for guidance specific to your situation.