When to start receiving Social Security benefits is one of the most important decisions in retirement planning. It has lasting implications for your income, taxes, and financial security. In 2025, changes in cost-of-living adjustments, taxation, and legislation such as the Social Security Fairness Act will add new layers of complexity.
When to Take Benefits
Social Security benefits can be claimed as early as age 62 or delayed until age 70. Claiming early results in a permanent reduction in monthly benefits. For individuals born in 1960 or later, full retirement age (FRA) is 67. Benefits are reduced by 5/9 of 1% for each of the first 36 months claimed before full retirement age, and by 5/12 of 1% for every additional month beyond that. Conversely, delaying benefits beyond FRA increases the monthly benefit by 8% per year up to age 70 through delayed retirement credits.
For example, suppose your full retirement age is 67 but you elect to start benefits at age 62. In that case, the SSA will calculate your payments based on the fact that you are taking the benefit 60 months before full retirement age—a 20% reduction for the first 36 months (five-ninths of 1% times 36) and another 10% (five-twelfths of 1% times 24) for the remaining 24 months, cutting your monthly Social Security benefits by a total of 30%.
But if you reach full retirement at age 67 and wait to start your benefits at age 69, you will receive a credit of 8% per year multiplied by two (the number of years you waited). This means your benefit amount would be 16% higher than the amount you would have received at age 67. (This excludes any potential cost-of-living adjustments for inflation from age 67 to 69.)
Timing
Applications can be submitted up to four months before the chosen benefit start date. The Social Security Administration requires information such as work history, marriage records, and bank details for direct deposit. Benefits are paid one month in arrears, so applicants should account for the delay when planning cash flow. Those born on the first of the month are treated as having been born in the previous month for eligibility purposes.
Earnings Limit
In 2025, individuals under full retirement age who continue to work and collect benefits will see $1 in benefits withheld for every $2 earned above $23,400. In the year an individual reaches FRA, the limit increases to $62,160, with $1 withheld for every $3 earned above this amount. These limits no longer apply beginning the month an individual reaches FRA.
Taxation of Benefits and Withholding Options
Social Security benefits may be subject to federal tax based on “combined income,” which includes adjusted gross income (AGI), nontaxable interest, and half of Social Security benefits. Up to 50% of benefits are taxable if combined income exceeds $25,000 (single) or $32,000 (joint); up to 85% is taxable above $34,000 (single) or $44,000 (joint).
Nine states also tax benefits in 2025: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Rules vary, with some offering age- or income-based exemptions.
Beneficiaries can use IRS Form W-4V to withhold federal taxes from monthly payments at 7%, 10%, 12%, or 22% or pay estimated taxes quarterly.
Strategies to Reduce Taxable Income
Retirees can lower their taxable income through several methods:
- Withdrawing funds from Roth IRAs, which are not included in combined income
- Making Qualified Charitable Distributions (QCDs) directly from IRAs, which reduce AGI
- Spreading Roth conversions across multiple years to minimize tax spikes
- Delaying traditional IRA withdrawals until required minimum distributions (RMDs) begin at age 73
Social Security Fairness Act of 2025
The Social Security Fairness Act, signed into law on January 5, 2025, repeals the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which had reduced benefits for approximately 2.8 million public-sector retirees—including certain teachers, police officers, and federal employees. As a result, affected individuals began receiving retroactive payments in March 2025, and their increased monthly benefits took effect in April. These adjustments will be reflected on the SSA-1099 for the 2025 tax year.
Tax Implications of the Fairness Act
Increased benefits resulting from the Act may push recipients into higher tax brackets. This includes possible taxation on up to 85% of Social Security benefits and the potential for Medicare premium increases due to higher reported income, triggering Income-Related Monthly Adjustment Amounts (IRMAA). Retroactive payments may also elevate 2025 income, affecting eligibility for certain credits or deductions.
Cost-of-Living Adjustment (COLA)
Social Security recipients received a 2.5% COLA in 2025. This increase may raise the taxable portion of benefits for retirees by increasing their total income.
The Big Beautiful Tax Bill and Senior Deduction Bonus
The proposed “Big Beautiful Tax Bill” introduces a new deduction of up to $4,000 for seniors aged 65 and older with adjusted gross income (AGI) of $75,000 or less (single) or $150,000 or less (married filing jointly), with couples eligible for up to $8,000 if both spouses qualify. Available from 2025 through 2028, this deduction is in addition to the standard deduction and the existing age-based deduction ($2,000 for single/head of household and $1,600 per spouse for joint filers). It applies regardless of whether taxpayers itemize and phases out at a rate of 4% above the income thresholds. Unlike the standard deduction, the new senior deduction is not indexed for inflation and is intended to provide targeted relief to lower- and middle-income retirees facing rising living costs.
Additional Provisions in the Bill
The proposed legislation also seeks to make permanent several provisions from the 2017 Tax Cuts and Jobs Act (TCJA), including:
- Lower individual income tax rates
- Increased AMT thresholds
- Expanded standard deduction
- Elimination of miscellaneous itemized deductions
- Removal of personal exemptions
- Payroll Tax Limits and Contributions
Although this legislation has passed in the House, it is still under consideration in the Senate and is therefore not law.
With new tax laws, benefit increases, and deductions in play, 2025 is a pivotal year for retirement planning. From deciding when to claim benefits to minimizing taxes and understanding legislative updates, now is the time to review your strategy. Knowing the rules—and using them to your advantage—can help you keep more of what you’ve earned. Contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com to discuss your situation.
Author Brooke Carroll, CPA, manager, oversees the individual tax practice at Stephano Slack’s office in Wilmington, Delaware. She brings exceptional value to client relationships by translating complex tax laws into clear guidance, helping clients navigate their tax responsibilities confidently. With 20 years of public accounting experience, Brooke offers a personalized approach to managing complex tax issues, particularly those involving the IRS, ensuring clients feel informed and supported throughout the process. Brooke can be contacted at 302-295-1025 or bcarroll@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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