If you work while collecting Social Security benefits, you can get hit with hefty benefit reductions. Here are the earnings limits for this year.
Can you work and collect Social Security at the same time? The short answer is yes, it’s possible. However, if you haven’t reached your full retirement age, the Social Security earnings test could cause the Social Security Administration (SSA) to withhold some, or even all, of your monthly benefit payments.
With that in mind, here’s an overview of the Social Security earnings test, how it could affect your benefits, what happens to benefits that are withheld, and all the details you need to know before claiming Social Security when you’re planning to keep working.
What is the Social Security earnings test?
Americans can claim Social Security benefits as early as age 62 or as late as age 70. However, there’s a rule known as the Social Security earnings test that prevents certain people from collecting their entire retirement benefit while simultaneously earning money from a job.
In a nutshell, the Social Security earnings test applies to people who have applied for Social Security retirement benefits but have not yet reached their full retirement age. However, there are several different parts of the Social Security earnings test, and some important concepts to understand.
What is your Social Security full retirement age?
Before we get started, the Social Security earnings test that applies to you depends on when you’ll reach your full Social Security retirement age, also known as your full retirement age, or FRA. So, the information will be useful to you only if you know what your full retirement age is.
Many Americans incorrectly believe that their Social Security full retirement age is 65 years old, and for good reason. This was indeed the case for much of the program’s history, but no longer in the modern era. For Americans who have yet to reach full retirement age for Social Security purposes, it can be age 66, age 67, or somewhere in between, depending on the year you were born.
With that in mind, here’s a quick guide to determining your full Social Security retirement age, so you’ll know which part of the Social Security earnings test will apply to you.
If You Were Born In…
|Your Full Social Security Retirement Age Is…
|66 years, 2 months
|66 years, 4 months
|66 years, 6 months
|66 years, 8 months
|66 years, 10 months
|1960 or later
Three kinds of Social Security beneficiaries
The SSA classifies beneficiaries into three categories for the purpose of the earnings test:
- Social Security beneficiaries who will reach full retirement age after 2019. For example, if your full retirement age is 67 and you just turned 62 in 2018, you’d be in this group.
- Social Security beneficiaries who will reach full retirement age during 2019. If you were born in February through December 1953, you’ll start 2019 in this group.
- Social Security beneficiaries who have already reached full retirement age, or who will do so during the current calendar month.
The Social Security earnings test affects people in each of these age groups differently, so next we’ll see how the Social Security earnings test applies to each.
1. If you’ll reach full retirement age after 2019
The most restrictive form of the Social Security earnings test applies to people who have claimed Social Security benefits but won’t reach their full retirement age until after the current calendar year. In other words, if you’ll reach your full retirement age on Jan. 1, 2020, or later, this is the rule that applies to you.
For 2019, people in this category will have $1 of their Social Security benefits withheld for every $2 in earned income in excess of $1,470 per month, or $17,640 per year.
Say you’ll be younger than your full retirement age for the entirety of 2019, and your monthly retirement benefit is $1,200. Here are a few scenarios:
- If you earn $15,000 from working part-time during 2019, you won’t have exceeded the Social Security earnings test limit and can collect your full $1,200 monthly retirement benefit all year long.
- If you earn $25,000 from working during 2019, this is $7,460 in excess of the limit. Based on the $1 per $2 withholding rate, that means $3,730 would be withheld from your benefits for the year. I’ll get to how the SSA does this later, but the takeaway is that instead of receiving $14,400 in Social Security benefits during the year, you’d get $10,670 instead. So you’d collect some, but not all, of your Social Security benefit.
- Finally, if you earn $80,000 from working in 2019, that would be $62,460 greater than the limit. Based on the calculation, it would translate to $31,230 in withholdings. That’s more than your Social Security retirement benefit, so your entire Social Security benefit for 2019 would be withheld in this scenario.
2. If you’ll reach full retirement age during 2019
If you’ll reach your full Social Security retirement age during 2019, you’re still subject to the Social Security earnings test, but you face a far less restrictive version.
For starters, the income threshold is higher. For 2019, the Social Security earnings test doesn’t kick in for members of this group unless they’ve earned more than $46,920. And the only months considered are those before the month in which you’ll reach full retirement age. In other words, if your full retirement age is 66 and your birthday is on Aug. 25, 2019, the income you earn from January through July is the only income considered for the purposes of the earnings test.
In addition, the benefit reduction rate for this group withholds $1 for every $3 in excess earnings, so even if you exceed the income threshold, the reduction isn’t as harsh.
For example, imagine you reached your full retirement age in August 2019 and you anticipate earning $50,000 between January and July. That’s $3,080 more than the earnings test threshold. So for every $3 of this amount, $1 of your benefit will be withheld, which translates to about $1,027.
3. If you’ve already reached full retirement age
Here’s the easy part. If you’ve already reached full retirement age, or you will reach full retirement age during the current calendar month, the Social Security earnings test doesn’t apply to you at all. You are free to earn as much money from working as possible without any effect on your Social Security benefits. In other words, if you’ll reach your full retirement age in January 2019, it doesn’t matter when your birthday is within the month — the entire month’s earnings are exempt from the earnings test.
For example, if you’re 68 at the beginning of 2019 and earn a salary of $150,000 from your job, you can still collect your entire Social Security benefit as calculated by the SSA.
What are the Social Security earnings test limits?
For quick reference, here’s a table about the Social Security earnings test limit and how it applies to you. I’ve included the 2018 limits for reference and to illustrate how these income thresholds increase with inflation over time.
Category 2018 Earnings Test Limit 2019 Earnings Test Limit You’ll reach full retirement age after 2019 $17,040/year ($1,420 per month) $17,640/year ($1,470 per month) You’ll reach full retirement age in 2019 $45,360/year ($3,780 per month) $46,920/year ($3,910 per month) You’ve already reached full retirement age Not applicable Not applicable
Benefit reductions for early retirement
In addition to the potential for some or all of your benefits to be withheld because of the earnings test, claiming Social Security before you reach full retirement age will result in a permanently reduced monthly benefit amount.
Depending on how early you decide to claim benefits, the SSA uses these two rules when reducing your benefit.
- If you claim Social Security before reaching your full retirement age, but within 36 months of it, your retirement benefit will be reduced by 6.67% per year (or about 0.56% per month) early, for as many as 36 months before full retirement age.
- If you claim Social Security retirement benefits more than 36 months before reaching your full retirement age, your benefit will be reduced by 20% plus an additional 5% for every year (or about 0.42% per month) before full retirement age. Age 62 is the earliest age at which you can claim your Social Security retirement benefit.
If your full retirement age is 67, that means your benefit can be permanently reduced by as much as 30% for claiming early. So in addition to the earnings test, factor this in before claiming Social Security early.
What income counts toward the earnings test limits?
First of all, it’s important to point out that as the name implies, the Social Security earnings test applies only to earned income. That generally means either income from a job (wages, salaries, bonuses) or net self-employment income.
The earnings test doesn’t consider investment income such as dividends or capital gains, pensions, annuities, other government benefits, or any other unearned sources of income. For example, if you claim Social Security and also take a distribution from your 401(k), that amount won’t count as earnings.
Your earned income from a job is considered when it’s earned, not necessarily when it’s paid to you. As one possible example, if you earn a bonus for your job performance in 2018 but don’t receive it until 2019, it will be counted as 2018 income. Or if you’re paid in 2019 for built-up vacation time you’ve accrued over the past several years, it won’t be counted as 2019 income. The exception is self-employment income, which is counted when it’s received.
How does the SSA know what you earned?
If you expect to earn more than your applicable Social Security earnings test limit, it is your responsibility to let the SSA know how much you anticipate earning for the year. In other words, if you’re 63 in 2019, have claimed benefits, and expect to earn over $17,640 during the year, you need to let the SSA know.
Retirement benefit recipients can’t yet do this online. If you need to report a change in your expected earnings, you can call the SSA at (800) 772-1213 or go to your local Social Security office.
Special rule for the first year you retire
Because not everyone retires or claims Social Security at the beginning of a calendar year, the SSA has a special rule that’s intended to make sure the earnings test doesn’t affect people it shouldn’t.
Here’s the plain English explanation. If you retire — meaning you actually stopped working, not just that you claim Social Security — you can collect your full Social Security benefit for the rest of that year, regardless of how much you’ve earned.
As an example, let’s say you reach age 62 in July 2019 and decide to retire. Before your birthday, you earned $75,000 — obviously well in excess of the applicable earnings test limit for a 62-year-old. However, because you’re retiring, you can collect your entire monthly benefit for the rest of 2019.
How does benefit withholding work?
If your benefits are reduced because of the Social Security earnings test, the SSA doesn’t withhold money from each of your checks. Rather, the SSA will withhold all benefit payments until the entire estimated annual withholding amount is met.
Here’s an example: You’ve filed for Social Security benefits and will be younger than your full retirement age for all of 2019. The SSA calculates you’re entitled to a $1,000 monthly benefit. If you tell the SSA you expect to earn $22,000 in 2019, this is $4,360 over the applicable earnings test limit. That means $2,180 of your benefits will be withheld in 2019. So your January, February, and March benefit payments will be withheld. From April through December, you’d receive your $1,000 monthly benefit. And since $3,000 was withheld, the $820 in excess withholding will be repaid to you in 2020.
What if your benefits are withheld because of the Social Security earnings test?
If your Social Security benefits are withheld because of your earnings before reaching full retirement age, there are two reasons your benefits might grow later.
First, when retirement benefits are withheld because of the earnings test, the SSA recalculates your benefit once you reach your full retirement age to account for the months you didn’t receive benefits.
For example, if you had 12 months’ worth of benefits withheld before reaching full retirement age, your monthly benefit after you reach full retirement age will be adjusted upward as if you had waited an additional year.
Second, any earnings while you’re working can be factored into the Social Security benefits formula. The current benefit formula is based on your 35 highest inflation-adjusted years of Social Security taxable earnings.
So if your most recent year of earnings is one of your 35 highest, the SSA will automatically recalculate your benefit and increase it accordingly starting with December of the following year but retroactive to January of that year.
For example, if you’ve already claimed Social Security but earn a high salary in 2019, your recalculated benefit will be reflected starting in December 2020, paid retroactively to January 2020.
The earnings test doesn’t just apply to retirement benefits
It’s also important to note that the Social Security earnings test doesn’t apply only to retirement benefits when the beneficiary earns too much. The earnings test also applies to other people who may be drawing benefits on your work record, such as spousal benefits or survivors benefits.
For example, if you die and your spouse is eligible to collect a $1,500 monthly survivors benefit based on your work record, your spouse’s income and age would be taken into account to determine if his or her survivors benefit would be partially or even fully withheld based on the Social Security earnings test. However, it wouldn’t affect survivors benefits payable to your children, unless they earn more than the earnings test limit.
How much will the earnings test reduce my Social Security benefits?
If you’re not a math person and don’t want to do earnings test calculations by hand, don’t worry. The Social Security Administration has an online earnings test calculator where you can estimate your potential benefit withholding.
Should you claim Social Security even if you’ll be subject to the earnings test?
Some people who earn in excess of the earnings test limits claim Social Security early to boost their income, even though it means some of their benefits will be withheld. Others don’t see a point in claiming Social Security early while they’re still earning enough to cover their expenses. However, now that you know the ins and outs of the Social Security earnings test, you’ll be in a good position to make a smart decision for you.
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