'We were advised to return the bonus and take out a home-equity loan'
"The bonus is related to work performed in 2025, and we plan to file the appropriate form with the Social Security Administration." (Photo subjects are models.)
Dear Quentin,
My husband retired at age 63 earlier this year. He worked through February and earned approximately $24,000 gross during that time. We both started receiving Social Security this year, and for the 10 months we will receive it, our combined benefits will be approximately $42,000. We also expect to receive approximately $9,000 in interest income this year from our bank accounts and CDs, which total about $280,000 combined.
We enrolled in Affordable Care Act insurance beginning March 1. Based on our original income estimates, our monthly premium was expected to be $358, after a monthly subsidy of approximately $1,599. However, my husband recently received a $42,000 gross bonus ($23,000 net). The bonus is related to work performed in 2025, and we plan to file the appropriate form with the Social Security Administration indicating that.
We have now been advised that, because of the bonus, our ACA subsidy may be affected. We were advised to return the bonus and take out a home-equity loan in order to preserve our ACA subsidy. I don't understand why this would make financial sense. Could you please explain how the bonus would affect our income and ACA subsidy, particularly since the bonus was for work performed in 2025?
It's a double-edged sword. Should we return the bonus?
Navigating Our 60s
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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
Delaying withdrawals from your retirement accounts and actually declining a $42,000 bonus are two very different prospects.
Dear Navigating,
The impact to your ACA subsidy, if there is one, is temporary. Refusing the bonus is permanent.
Your scenario is not an unusual one. In addition to assessing risk tolerance (namely, stocks versus bonds in your retirement portfolio), retirees must also grapple with tax tolerance (how much income you are prepared or compelled to take from a traditional IRA or 401(k)), IRMAA surcharges and, as you have discovered, ACA subsidy cliffs. But delaying withdrawals from your retirement accounts and actually declining a $42,000 bonus are two very different prospects.
Pandemic-era enhanced subsidies expired on Dec. 31, 2025. For a two-person household, 400% of the poverty line - according to the 2025 guidelines that apply to 2026 - is $84,600. If your income exceeds that threshold, the tax credit for your ACA premium can disappear completely - this is the much-dreaded "subsidy cliff." Your eligibility is based on your household modified adjusted gross income, not just your gross income or the amount of money you have in the bank.
Consult with a certified financial planner and a tax accountant. If the bonus would push you just over the subsidy cliff, the "expert" who is currently giving you advice posits that returning the bonus would, given your income, allow you to stay below the threshold and preserve thousands of dollars in ACA subsidies. Then, in theory, you could always borrow money if you needed extra cash. This sounds like a dramatic solution, and one that should be treated with caution.
You mention filing a form to note that the bonus was for work performed in 2025. That's the SSA-131 or "Employer Report of Special Wage Payments." If your husband had not yet reached full retirement age when he retired, Social Security can withhold $1 in benefits for every $2 he earns above the annual limit. If the employer confirms the bonus was for work performed in 2025, filing the SSA-131 keeps it out of that calculation. But it does not prevent the bonus from being included in your household's 2026 income for ACA purposes. That's a separate calculation.
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Returning the bonus
The loan itself doesn't preserve your subsidy. Returning the bonus could, if doing so, keep your income below the subsidy threshold. The home-equity loan gives you access to cash without creating taxable income, but it also puts your home at risk. Put bluntly, you'd be replacing income with debt. Whether that makes financial sense depends on how much subsidy you'd save by returning the bonus versus the tax value of keeping it and the interest and other costs of the loan.
And declining the bonus is not necessarily so simple. If it's already been paid, your husband's employer would need to void or reverse the payment (and correct the W-2) so that it's not reported on your husband's tax return. If the bonus is repaid after it has already been included in taxable wages, the tax consequences can be more complicated. Do not assume that writing a check back to the employer will erase the income when it comes to your ACA subsidy.
Eligibility for your ACA health-insurance subsidy is based on your modified adjusted gross income. Work-related bonuses - and withdrawals from traditional IRAs and 401(k)s - count fully as taxable income, while Roth IRA withdrawals do not, as those were funded with after-tax dollars. Capital gains, dividends and interest on your taxable brokerage account, however, are counted.
IRMAA surcharges are based on your MAGI from two years prior, so 2026 income generally affects your 2028 Medicare premiums. You may be able to appeal an IRMAA determination if your income has fallen because of a qualifying life-changing event, such as retirement. (The bonus could also affect your future Medicare premiums if it increases your MAGI enough to cross an IRMAA threshold, although that is a separate issue.)
Don't give up the bonus unless you determine that it really would leave you better off.
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More columns from Quentin Fottrell:
Should wealthier Americans forgo their Social Security benefits as a charitable gesture?
I am a 63-year-old semiretired physician. If I saved $2 million for retirement, should my Social Security become optional?
Social Security's funding crisis is the elephant in the room. But don't ignore the mouse.
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-Quentin Fottrell
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