Many retirees continue working part-time or even full-time after claiming Social Security benefits. Whether for financial necessity, personal fulfillment, or social engagement, working in retirement is increasingly common. However, if you haven’t reached your full retirement age, continuing to work can temporarily affect your Social Security payments through what’s called the earnings test.
Understanding how work affects your benefits is crucial for retirement planning. The good news is that any benefit reductions from the earnings test aren’t permanent losses—they’re credited back to you later. But the mechanics can be confusing, and planning ahead helps you avoid surprises.
This guide explains exactly how working affects your Social Security benefits, when the earnings test applies, and strategies for managing work and benefits together.
Table of Contents
- What Is the Social Security Earnings Test?
- What Are the Current Income Limits?
- How Is the Benefit Reduction Calculated?
- What Types of Income Count Toward the Limit?
- What Changes After Full Retirement Age?
- How Are Withheld Benefits Credited Back?
- What Is the Special First-Year Rule?
- What Are the Tax Implications of Working?
- Strategies for Working While Collecting Benefits
- Frequently Asked Questions
What Is the Social Security Earnings Test?
The Social Security earnings test is a provision that temporarily reduces benefits for people who claim Social Security before their full retirement age (FRA) and continue to work. It’s designed to offset benefits for people who are still earning substantial income from employment.
The earnings test only applies if you’re under your full retirement age. Once you reach FRA, you can earn unlimited income without any reduction in benefits. The test also only applies to earned income from work—investment income, pensions, and retirement account withdrawals don’t count.
The chart above summarizes the three phases of how work interacts with Social Security benefits. The rules are most restrictive before FRA, become more lenient in the year you reach FRA, and disappear entirely once you’re past FRA.
What Are the Current Income Limits?
The earnings limits change annually and are adjusted for inflation. For 2024:
- Before the year you reach FRA: $22,320 per year ($1,860 per month)
- In the year you reach FRA (months before FRA): $59,520 per year ($4,960 per month)
- After reaching FRA: No limit—you can earn any amount
How Is the Benefit Reduction Calculated?
If you exceed the earnings limits, your Social Security benefits are reduced according to specific formulas:
Before the Year You Reach FRA
For every $2 you earn above the $22,320 limit, $1 is withheld from your benefits. For example, if you earn $32,320 (which is $10,000 over the limit), $5,000 in benefits will be withheld during the year.
In the Year You Reach FRA
In the months before you reach FRA, for every $3 you earn above the $59,520 limit, $1 is withheld. Only earnings from months before your birthday month count. Once you reach FRA, earnings for the rest of that year have no effect on benefits.
The example above shows how the earnings test works in practice. While the reduction might seem significant, remember that withheld benefits aren’t lost—they’re added back after you reach FRA through higher monthly payments.
What Types of Income Count Toward the Limit?
Only certain types of income trigger the earnings test. Understanding what counts and what doesn’t can help you plan your income sources strategically.
Income That DOES Count
- Wages from employment
- Net self-employment income
- Bonuses, commissions, and vacation pay
- Severance pay (in most cases)
Income That Does NOT Count
- Pension payments
- 401(k) and IRA withdrawals
- Investment income (dividends, interest, capital gains)
- Rental income (unless you’re in the real estate business)
- Annuity payments
- Social Security benefits themselves
What Changes After Full Retirement Age?
The earnings test completely disappears once you reach your full retirement age. Starting with the month you reach FRA:
- You can earn unlimited income from any source
- Your benefits are no longer reduced regardless of earnings
- Any benefits previously withheld are factored into your new payment amount
This is why some people choose to delay claiming benefits until FRA if they plan to continue working—it avoids the complexity of the earnings test entirely.
How Are Withheld Benefits Credited Back?
When you reach FRA, Social Security recalculates your benefit to account for months when payments were withheld. Your monthly payment increases to credit back those withheld benefits over your remaining lifetime.
For example, if you had 12 months of benefits withheld before FRA, your monthly payment after FRA would be adjusted upward as if you had claimed 12 months later. This isn’t quite the same as delayed retirement credits, but it accomplishes a similar result—you eventually receive value for the withheld months.
What Is the Special First-Year Rule?
Social Security offers a special monthly earnings test for the first year you claim benefits. This helps people who retire mid-year and have already earned significant income before retirement.
Under the monthly rule, you can receive full benefits for any month your earnings fall below the monthly limit ($1,860 in 2024), regardless of your annual earnings. This allows someone who earned $100,000 in the first half of the year to still receive full benefits for each month after retirement when their earnings drop below the monthly threshold.
What Are the Tax Implications of Working?
Working while collecting Social Security affects your taxes in addition to the earnings test.
Social Security Benefits May Become Taxable
If your combined income (adjusted gross income + nontaxable interest + half your Social Security) exceeds certain thresholds, part of your Social Security benefits becomes taxable:
- Single filers: Benefits taxable if combined income exceeds $25,000; up to 85% taxable above $34,000
- Married filing jointly: Benefits taxable if combined income exceeds $32,000; up to 85% taxable above $44,000
Additional Social Security Taxes on Earnings
If you work while collecting benefits, your earnings are still subject to Social Security taxes. However, this can actually help you—if your current earnings are higher than one of the 35 years in your benefit calculation, your benefit may be recalculated upward.
Strategies for Working While Collecting Benefits
Wait Until FRA to Claim
If you plan to work substantially, consider delaying benefits until FRA. This avoids the earnings test entirely and earns you delayed retirement credits, increasing your eventual benefit.
Limit Earnings to Stay Under the Threshold
If you want benefits but don’t want reductions, you might limit work hours or choose part-time employment that keeps earnings below the annual limit.
Understand It’s Not Really a Loss
Remember that withheld benefits are credited back after FRA. If you need to work, don’t let the earnings test prevent you—you’re not actually losing money long-term, just deferring it.
Use Non-Earned Income Sources
Strategically drawing from investments, retirement accounts, or other non-earned sources doesn’t trigger the earnings test. This can allow you to maintain income while keeping earned income below limits.
Final Thoughts
Working after retirement doesn’t have to mean sacrificing your Social Security benefits. The earnings test only applies before full retirement age, and even then, withheld benefits are eventually credited back. Understanding these mechanics helps you make informed decisions about work and benefits.
If you’re planning to work while collecting benefits before FRA, estimate your earnings and understand how the reduction calculation works. For those with substantial work plans, waiting until FRA to claim might simplify your situation and provide a higher lifetime benefit.
Frequently Asked Questions
Do I lose the money that’s withheld from my benefits?
No. When you reach full retirement age, your monthly benefit is recalculated to give you credit for the months when benefits were withheld. Over your lifetime, you recover the withheld amounts through higher monthly payments.
Does my spouse’s income affect my earnings test?
No. Only your own earnings count toward your earnings test. Your spouse’s income, even if substantial, doesn’t affect your Social Security benefits (though it may affect whether your benefits are taxable).
What if I’m self-employed?
Net self-employment income counts toward the earnings limit. If you’re self-employed, your net earnings (after business expenses) are what matter for the earnings test. Social Security also considers how many hours you work in your business.
Can working increase my Social Security benefit?
Yes. Social Security recalculates your benefit annually if your current earnings are higher than one of the 35 years used in your calculation. If current work replaces a zero or low-earning year, your benefit increases.
What if I return to work after retirement?
The same rules apply whether you work continuously or return to work after a gap. If you’re under FRA, the earnings test applies. If you’re over FRA, you can earn unlimited income without affecting benefits.