Most people wait to claim Social Security until they're done working and officially retired, but you don't have to quit working or be retired to claim it. As long as you're age 62 or older, you can claim Social Security whenever you want.
However, if you are working while receiving Social Security, there is one tax consequence to be aware of to avoid getting caught off guard. And if you're claiming benefits before your full retirement age, there's one Social Security rule that could affect how much you receive.
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You could make your Social Security benefits subject to federal taxes
Most people can avoid state taxes on their Social Security benefits, but federal rules apply to everyone. Whether you need to pay federal taxes on your Social Security depends on your combined income, which is your adjusted gross income (AGI), half of your annual Social Security, and any non-taxable interest you receive (like from some municipal bonds) combined.
For example, if your AGI is $30,000, your annual Social Security benefit is $20,000, and you receive $1,000 from municipal bonds, your combined income would be $41,000 ($30,000 + $10,000 + $1,000).
Here is how much of your Social Security benefits are eligible to be taxed based on your combined income:
| Filing Status | Combined Income | Percentage of Benefits Taxable |
|---|---|---|
| Single | Less than $25,000 | 0% |
| Single | $25,000 to $34,000 | Up to 50% |
| Single | More than $34,000 | Up to 85% |
| Married, filing jointly | Less than $32,000 | 0% |
| Married, filing jointly | $32,000 to $44,000 | Up to 50% |
| Married, filing jointly | More than $44,000 | Up to 85% |
Data source: IRS.
If you continue working while claiming Social Security, there's a chance your AGI will increase to the point where you go from 0% of your benefits being subject to federal income tax to between 50% and 85%.
That isn't how much your benefits will be taxed; just how much is eligible to be taxed. The taxable amount is added to your other income and taxed at your personal income tax rate.
Don't forget the RET if you claim benefits before your full retirement age
If you claim benefits before your full retirement age and earn more than a certain amount, Social Security will apply its retirement earnings test (RET).
If you won't reach your full retirement age in 2026, the earnings limit is $24,480. Earning above that amount will reduce your benefits by $1 for every $2 you earn above than. For example, if you earn $10,000 more than the limit, your annual benefits will be reduced by $5,000.
If you reach your full retirement age in 2026, the limit is $65,160. Earning above that will reduce your benefits by $1 for every $3 over that amount. If you were to earn $9,000 above the limit, your benefits would be reduced by $3,000.
Benefits are not permanently lost
When Social Security reduces your benefit for exceeding the RET limit, it doesn't pocket and keep the money. It essentially holds it until you reach your full retirement age. At that point, it will recalculate your monthly benefit to gradually return the withheld amount.
Some people worry that they may not live long enough to recover all the withheld benefits, but according to the Social Security Administration, a RET-affected beneficiary will receive most or all of their withheld benefits during their lifespan.
What happens if you retire in the middle of the year
If you retire in the middle of the year, you get special treatment regarding the RET. Instead of looking at your annual income, Social Security will look at your monthly earnings. This is to help in situations where someone retires in the middle or at the end of the year and has already earned more than the RET limit for the year.
If you'll be younger than the full retirement age for the rest of the year, the monthly limit is $2,040. If you'll reach your full retirement age during the year, the monthly earnings limit leading up to your birthday is $5,430. Any time you go over the limit, you will lose your entire check for that month.
For some people, earning more than the limit and having benefits withheld is worth the income they receive during that time. That won't be the case for everyone, though, so make sure you truly want to begin collecting benefits while working.
