Still Working While Receiving Social Security? A Financial Adviser's Guide to the Earnings Test

The Social Security retirement earnings test is a set of rules that determines how much of an individual's Social Security will be temporarily withheld from their benefit check if they are younger than full retirement age and still earning income while receiving benefits.

This article clarifies the nuances of the earnings test, its implications on benefit amounts and how to navigate it effectively.

Earnings test fundamentals

The retirement earnings test (RET or earnings test) applies to Social Security beneficiaries who:

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• Have not yet reached their full retirement age, and
• Receive Social Security retirement, spousal or survivor benefits and
• Continue to work and earn income above specific earnings thresholds

Once beneficiaries have reached their month of full retirement age (FRA), the earnings test no longer applies.

It's important to note that the amounts withheld are not lost. Once an individual reaches FRA, all withheld amounts are calculated and converted to the equivalent number of months withheld.

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Benefits going forward are then increased as if the beneficiary had started claiming at a later date. This results in permanently higher future payments, which eventually should replace the money that had been previously withheld.

Earnings that count

The earnings test applies only to the income you earn, which includes:

• Wages. Salaries, bonuses and commissions
• Self-employment income. Net earnings from self-employment
• Deferred compensation. Income for services performed in earlier years

Income that is not counted

Only earned income is counted under the earnings test. Other sources of income do not count. SSA has a list from (literally) A through Z that describes those sources of income.

For example, some of the income sources that do not count include:

• Pensions, investment income and payments from certain annuities that are exempt from income tax
• Rental income (unless actively managing property as a business)
• Veterans or military disability benefits
• Gifts or inheritances

Annual earnings test thresholds and deduction rules

There are two retirement earnings test-exempt threshold amounts and deduction rules. The annual limits for these in 2025 (and in 2026) are:

• In the years before you reach your FRA, up through December of the year before hitting this age milestone, $23,400/year (rising to $24,480 in 2026). For every $2 earned above this amount, $1 is withheld from your Social Security checks.
• In the year you reach your FRA, up to but not including the FRA month, $62,160/year (rising to $65,160 in 2026). For every $3 earned above this, $1 is withheld from your Social Security checks until the month you reach your full retirement age.

During the month you reach your full retirement age and after that, there is no longer an earnings limit. Full benefits are paid regardless of how much you earn.

Monthly earnings test thresholds and deduction rules

There is a special earnings limit rule that could be helpful for some. In the first year of receiving benefits, a monthly test applies if you start your benefits midyear. This avoids individuals being penalized if they made more than the annual limit prior to receiving benefits.

Benefits may be paid for months when earnings are below the monthly limit. These monthly limits are:

• In the years before your FRA year. $1,950/month in 2025 (rising to $2,040 per month in 2026). For every $2 earned above this, $1 is withheld from your Social Security checks.
• In your FRA year. $5,180/month in 2025 (rising to $5,430 per month in 2026). For every $3 earned above this, $1 is withheld from your Social Security checks.

If the monthly earnings test applies, benefits are withheld only for months when earnings exceed the monthly limit, regardless of annual income.

The flow chart below demonstrates how the earnings and monthly earnings tests are applied.

The monthly threshold cannot be exceeded by even $1. If it is exceeded, the entire month of benefit isn't paid.

How withholding benefits works

SSA calculates the excess earnings for the year. Benefits are withheld in whole month increments until the required reduction is met. Payments resume once withholding requirements are satisfied.

Annual earnings test example for 2025:

• An individual filed in January 2024 at age 63 and receives a monthly benefit of $1,500. Their annual earnings are $35,000.
• Their excess earnings are $35,000 - $23,400 = $11,600.
• Their withholding will be $11,600 ÷ 2 = $5,800.
• SSA will withhold benefits for the first four months ($1,500 × 4 = $6,000).
• Full benefits resume in May.

Monthly earnings test example for 2025:

• An individual filed in June 2024 at age 64 and received a monthly benefit of $1,800 for June through December.
• The individual earned $2,600/month from January through May and then continued working a reduced schedule as they eased into retirement.
• They earned $2,100/month in June and July, $1,500 in August, September and October and $1,200 in November and December. The MET amount of $1,950/month would have applied to those months.
• This person would receive no monthly benefits for June and July because they exceeded the MET amount those months. However, they would get their full $1,800 Social Security check for the rest of the year, because their monthly earnings for each of those months were below the MET limit.
• The annual earnings limit (with $1 withheld per $2 earned over the threshold) would apply in the following year, based on their age of 65.

Recalculation of benefits after FRA

Once a beneficiary reaches their FRA month, the SSA determines the total amount that was withheld and converts that into the number of months of benefits that is equivalent to.

A recalculation is made by giving credit to the beneficiary for the total months that benefits were withheld. The credit is given as an adjustment to the date that benefits were started and results in a higher monthly benefit for the remainder of the beneficiary's life.

Recalculation example:

Consider the case of an individual who is collecting $2,000 per month and still working. For simplicity, assume that they earn $3,950 per month for two years, 24 months, and then stop working.

Each month the SSA will withhold $1 for every $2 over the lower threshold of $1,950. Since $3,950 minus $1,950 equals $2,000, an amount of $1,000 will be withheld each month.

This is 50% of the individual's monthly Social Security benefit amount. The total withheld then is equivalent to 12 months, or one year of credit to be given.

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After reaching FRA, the individual's benefit will be recalculated as if the individual had delayed filing for 12 months and had started collecting benefits at age 63, increasing the monthly benefit accordingly going forward.

This readjustment happens the month you hit full retirement age, so depending on how long you live, over time, you potentially will regain all the benefits that were withheld due to the earnings test.

Earnings test overpayments

Sometimes the SSA will overpay an individual who is subject to the earnings test and will send an overpayment recovery letter — meaning you got more than you should have, and you have to pay it back.

This overpayment can happen for a variety of reasons, such as a beneficiary starting work again after claiming or receiving a raise at their job that increases their earnings above the threshold.

Overpayment recovery process

The overpayment process begins when a beneficiary receives a notice detailing the overpayment amount. Their options include paying the entire amount as a lump sum repayment or monthly deductions from future benefits.

Beneficiaries can appeal by filing Form SSA-561, Request for Reconsideration. Make sure to file your request within 60 days.

Or you can request a waiver if repayment causes financial hardship (Form SSA-632-BK).

Strategies to minimize the impact of the earnings test

• Time your filing date strategically to align with lower earnings years.
• Track and report earnings accurately to avoid overpayment issues.
• Consider delaying benefits until your full retirement age to avoid the retirement earnings test entirely.

Conclusion

The Social Security earnings test can significantly affect cash flow for beneficiaries who continue to work while claiming benefits early.

By understanding its rules, limits and exceptions, you can better navigate its complexities, optimize benefits, and plan effectively for retirement.

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