Social Security’s “First Year” Rule: When you claim early and still work

Here at The AMAC Foundation, we often hear from folks who are vaguely aware that if they collect Social Security benefits early and continue to work, their benefits may be affected. The details of Social Security’s “Earnings Test” can be tricky, especially during the first year of collecting early benefits, where “early” is defined as anytime before one’s Social Security full retirement age. And Social Security’s so-called “first year rule” has surprised many a new recipient. Intended as a way to accommodate those who claim Social Security mid-year but have already earned more than allowed by the earnings test, the first year rule uses a monthly, rather than annual, earnings limit for the remainder of the calendar year in which a person starts benefits. All of this is explained in this Motley Fool article by Katie Brockman. Click here to read more.
Also, if you’re unsure about your individual situation under Social Security or have questions about your personal benefit entitlements, note that the AMAC Foundation provides an independent free-to-the-public Social Security Advisory service to help Americans navigate the complexities of this program. Learn more about it here…
I am 63 (turning 64 in August). Would I be able to claim my social security benefits now but keep working until the end of the year at my regular pay rate at work (more than $1,950 per month) or will my benefits be reduced or if not, will what I get in social security benefits throw me into a higher tax bracket this being my first year of retirement and subject to the first year rule. What I was hoping to do is use the social security benefits as extra income to pay off debt until the end of the year and actually retire (quit my job) in January of next year (within the first year rule). Convoluted I know but hopefully you all understand my question.
If you claim your benefits now at 63, your benefit will be permanently reduced, and you will be under an earnings limit. How the first-year rule works when people retire in mid-year, they have already earned more than the annual earnings limit. Under this rule, regardless of your earnings for the year, you will be subject instead to a monthly limit for 2025 it is $1,950 (gross not net pay). If you should go over the monthly limit, Social Security will use either the monthly or the annual limit for your first year, which ever results in the lowest penalty. Then starting in January, you will be under the annual earnings limit.
To answer the tax portion of your question is: It depends on your filing status (single or married filing jointly) and your Modified Adjusted Gross Income (MAGI), either 50 percent or 85 percent of your benefit income will be included in your taxable portion of your income. Always consult with your tax professional on how it will affect you.
Sincerely,
EM Cook
“The above is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.”
I am thinking of retiring in July 2025, I will be over the earnings amount, if I request my first ssc for august will I get my full check?
Hello Linda,
You will get your full benefit. Because you have gone over the earnings limit already you can use the Monthly Limit of $1,950.00 next year for your income from August through December. It is important that you keep records of your income so it will be documented for Social Security when they send a letter questioning the overage next year. Social Security will not realize you went over the annual limit until they get your tax information from the IRS next year.
Please give us a call at 888-750-2622 or email ssadvisor@amacfoundation.org if you have further questions and we will be happy to help.
Thank you for contacting us.
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If I take social security at 62 when I reach full retirement can I still work and have no deduction from my social security
Ronald:
The earnings test does not apply after full retirement age (FRA) is reached. Starting at the month you reach FRA, earnings will no longer affect your monthly Social Security benefit, regardless of how much you earn. The annual earnings limit increases by about 2 ½ times during the year FRA is reached and disappears completely once FRA is attained. So yes, you can work after reaching your FRA with no Social Security deduction.
Thanks for contacting us!
Gerry Hafer
AMAC Foundation
CONFIDENTIALITY NOTICE: The opinions and interpretations expressed in this message are the viewpoints of the message’s author, a trained advisor accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). The author, the NSSA, and the AMAC Foundation are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government.