Retiring and claiming Social Security may sound like moves to make at the same time. But a sizable group of people on Social Security continues to work after claiming benefits—and that can have implications for financial plans.

Roughly 40% of people who claim Social Security still work at some point after claiming, typically for several years, according to the Center for Retirement Research at Boston College.

Some people work after claiming because they’re struggling to afford retirement, but many higher-income beneficiaries work at older ages because they prefer to do so. A relatively small number have delayed their claims until age 70, when there is no financial reason to wait for benefits, but they are still working in a full- or part-time capacity.

For these higher-income people, working while receiving Social Security can come with a significant tax drag. If you claim before your full retirement age (currently 67), Social Security benefits are subject to the “earnings test,” a formula that temporarily withholds a portion of benefits if your wage income exceeds certain levels. You may also need to pay taxes on Social Security benefits or surcharges on Medicare premiums, or simply be pushed into higher income tax brackets.

A higher tax burden isn’t a reason by itself to not continue working at an older age. Working longer can offer an important path to improving retirement security. Wage income can enable delayed Social Security claiming by helping to pay living expenses. Working longer also can mean fewer net years drawing down retirement savings and more years of employer-subsidized health insurance.

Critically, continued engagement with work can provide a strong sense of purpose.

These benefits outweigh the tax considerations, says Elaine Floyd, a certified financial planner and director of retirement and life planning at Horsesmouth, which provides tools and resources to financial advisors.

“My father was an accountant, and one of his pet peeves was people who didn’t want to make money because they didn’t want to pay taxes,” she says. “He always said, ‘Until the government takes 100% of your income, it always pays to work,’ and that’s just stuck with me.”

But the tax rules were not written with work at older ages in mind, and the combination of Social Security and wage income can easily trigger these tax drags. So, from a retirement planning perspective, it’s worthwhile to understand how your income can be affected if you’re working and receiving Social Security.

Taxation of Social Security Benefits

Social Security benefits were first taxed in 1984 as part of a comprehensive Social Security reform package signed into law the previous year, aimed at stabilizing the program’s finances.

The most important part of that reform was the gradual increase in the full retirement age, but taxes collected on benefits play a supporting role. The taxes levied go into the Social Security trust funds.

Taxes accounted for 3.9% of the trust funds’ total income in 2024, according to the Social Security Administration. (Payroll taxes accounted for 91.2% of income, and interest on trust fund bonds generated 4.9%.)

When first passed into law, the tax on benefits affected only relatively high-income beneficiaries. But about half of Social Security beneficiaries paid income taxes on Social Security benefits in 2014, and the number of people affected is rising.

That’s because Social Security benefits are indexed to wage growth and adjusted for inflation, while the income threshold levels used to determine the taxable amount of Social Security benefits are fixed by law and not indexed for wage growth or inflation. Initially, less than 10% of beneficiary families were taxed, but projections show that about 56% will owe federal income taxes through at least 2050.

The formula used to determine the tax is unique. First, you determine a figure Social Security calls combined income (also sometimes called provisional income). This amount is equal to your modified adjusted gross income, plus nonexempt interest, plus 50% of your Social Security benefits. For most taxpayers, MAGI consists of everything in adjusted gross income except the taxable portion of Social Security benefits.

No taxes are paid by beneficiaries with combined income equal to or below $25,000 for single filers and $32,000 for joint filers.

Beneficiaries in the next tier of income—between $25,000 and $34,000 for single filers and between $32,000 and $44,000 for married couples filing jointly—pay taxes on up to 50% of their benefits. Beneficiaries with income above those levels pay taxes on up to 85% of benefits.

The IRS sends Form SSA-1099 during tax season, which shows the total amount of benefits you received from Social Security in the previous year. This tells you how much Social Security income to report to the IRS on your tax return. You can also ask the Social Security Administration to withhold taxes when you file for benefits at various withholding rates.

Medicare Surcharges

I frequently hear from new retirees who are shocked to learn that they are facing higher-than-expected premiums for Medicare Part B (outpatient services) and Part D (prescription drug coverage). Welcome to what the government helpfully refers to as the income-related monthly adjustment amount.

IRMAA often is unavoidable if you continue to work while receiving Social Security and enroll in Medicare, and many people find themselves subject to these surcharges in the first couple of years of full retirement. That’s because the Social Security Administration determines whether you must pay IRMAA using your most recent tax return made available by the IRS to Social Security—generally two years before the year for which the premium is being determined (but not more than three years). So, income from your last years of work might affect the first few years of Medicare costs.

The income levels that trigger IRMAA are calculated from the MAGI shown on your tax return. This year, the surcharges begin for single filers with MAGI above $109,000 and joint filers above $218,000—they will pay an extra $81.20 per month, with smaller IRMAA charges added to Part D premiums. There are four additional brackets for people with even higher incomes.

IRMAA for Part B is rising sharply because of the way premiums are set. They are based on Medicare’s projection of total Part B program costs for the coming year; if you pay the standard premium, you’re covering 25% of those costs. But if you are in an IRMAA tier, you pick up 35%—and your share escalates sharply from there for those with very high MAGI.

And overall Part B program costs are jumping. The standard premium ($202.90 per month this year) rose 9.7% for 2026. In part, that reflects general increases in the cost of healthcare. It also reflects a shift in healthcare delivery from inpatient to outpatient settings—and the growth of Medicare Advantage plans, which now account for more than half of total enrollment. Medicare spends about $80 billion more annually for Medicare Advantage enrollees than it would if they were enrolled in traditional Medicare, leading to higher spending for both Part A (which covers hospitalization) and Part B.

(Although IRMAA is based on tax returns from two years prior, Social Security will recalculate for qualifying “life-changing events,” including retirement. To file an appeal, use Form SSA 44.)

Required Minimum Distributions

Required distributions from tax-deferred retirement accounts can aggravate these tax drags considerably. Required minimum distributions generally aren’t required from the 401(k) accounts of a current employer, but they kick in for traditional IRAs or workplace plans sponsored by former employers. For most people, RMDs now begin at age 73.

If you’re still working at that age, RMDs will stack on top of wages and Social Security income. They raise both adjusted gross income and modified adjusted gross income, and they can push you into higher taxes on Social Security and higher IRMAA tiers.

Taxes on Wages

Wage income continues to be subject to payroll taxes, even after you are enrolled in Social Security and Medicare.

The Social Security rate is 12.4% up to the maximum taxable amount ($184,500 in 2026), split evenly with your employer. The Medicare tax—which has no income cap—totals 2.9%, also split evenly with your employer.

If you work independently, you are responsible for the full amount of both taxes, although the employer half is tax-deductible. In addition, there is a 0.9% Medicare surtax on earnings above $200,000 for single filers and $250,000 for married couples filing jointly.

The Earnings Test

You can claim Social Security retirement benefits starting at age 62, but if you claim before your full retirement age, your benefits are subject to the retirement earnings test. This is a formula that withholds a portion of benefits if your wage income exceeds a certain level.

But the withheld benefits are not lost; when you reach full retirement age, Social Security recalculates your monthly benefit to credit you with any withheld benefits.

The Social Security Administration has a calculator that you can use to determine the effect of the retirement earnings test on your benefits.

Planning Implications

Much of the tax drag created by the stacking of wage income with Social Security and RMD income is unavoidable, but tax planning can soften the bite in some instances. Ideas to consider include Roth IRAs and Roth conversions, the use of qualified charitable distributions, and diversification that includes taxable accounts.

Horsesmouth’s Floyd also counsels preretirees to consider cutting back on contributions to tax-deferred accounts.

“If you’re planning to continue working and you already have a hefty IRA or 401(k), maybe start contributing to a Roth or just a taxable brokerage account,” she says. “You really do want to be mindful of the size of your IRAs and how large those RMDs are likely to become.”