People are working later in life than ever before. Many people continue to work even after starting their Social Security retirement benefits. Some people work a part-time job for a little extra income, while others work a full-time job because they need the money to survive.
However, you may already know that if you work while receiving Social Security benefits, it can reduce your monthly benefit amount. Not all income is earned through employment, so what about other types of income? Will that income also have an impact on your Social Security benefit? We will tell you everything you need to know about which types of income might reduce your Social Security benefits.
How Working Affects Your Social Security Income
Someone might continue working after starting their Social Security benefits for several reasons. You might continue working simply because you enjoy your job or career. Some people continue working because they need money. Whatever the reason, working after you start receiving Social Security benefits could cause your benefit payments to decrease. Here is how work affects your benefits:
Before Full Retirement Age
If you haven’t reached your full retirement age yet, working can make a big difference in how much you get each month from the Social Security Administration (SSA). If you make more than the Social Security limit, your monthly payment will go down by $1 for every $2 you make over the limit. Suppose you earn $12,000 more than the limit. This means your Social Security benefits would be decreased by $6,000 that year.
During Full Retirement Age
Things change a little during the year you reach full retirement age. In the months before your birthday, when you reach full retirement age, your benefits will be reduced by $1 for every $3 you earn above the limit.
The earnings limit also increases during that year as well. We will discuss the earnings limit in more detail in the next section. There is no income limit once you reach full retirement age (FRA). You can then earn any amount of money without affecting your benefit payments.
Pay Back Extra Benefits
You should pay particular attention to how much money you earn during the year so you do not end up in an overpayment situation. This can be especially troubling for people who earn self-employment income.
You might not know you’ve made more than the limit until the end of the year. At that point, the Social Security Administration will ask you to pay back any extra benefits they’ve given you. This might not seem fair, but it’s how Social Security works.
KEY TAKEAWAYS
- Continuing to work while taking Social Security retirement benefits early may reduce your benefit payments.
- Some income you receive, such as 410k distributions, capital gains, and interest income, does not count towards your Social Security earnings limit.
- Full Retirement Age (FRA) differs based on the year you were born; however, once you reach FRA, you can earn unlimited income without affecting your Social Security benefits.
The Earnings Test & Social Security Income Limit
The Social Security earnings test is typically applied on an annual basis. Some situations allow Social Security to use a monthly earnings test, but this usually only applies during a person’s first year of retirement. Using this method, they will examine your monthly income instead of your annual income. This method typically works in favor of the Social Security beneficiary.
Limit Before Full Retirement Age
So, how much can you earn while collecting Social Security? If you have not yet reached full retirement age, the earnings limit for 2024 is $22,320. For 2025, this will increase to $23,400. Your benefits will be reduced by $1 for every $2 you earn above the limit.
Since you pay Social Security taxes on your earnings, the Social Security Administration typically does a good job of tracking how much you have earned during the year. Your benefits will be reduced accordingly once you hit the annual earnings limit.
Limit Year of Full Retirement Age
In the calendar year you reach full retirement age, the income limit increases to $59,520. This rises to $62,160 in 2025. This limit applies to the months before your birthday. For example, if you reach full retirement age in August, your earnings limit for January through July will be $56,250. If you hit the limit during that timeframe, your benefits will be reduced by $1 for every $3 you earn above the limit. Once you reach full retirement age, the limit goes away.
There is no limit to how much annual income you can earn, and your benefits will not be affected. Remember that these limits apply to both retirement benefits and survivor benefits. If your spouse keeps working while you receive spousal benefits, your benefit amount could decrease.
Working While on Disability
Remember that these limits apply to Social Security retirement benefits. The rules concerning working while receiving disability benefits are much different. By definition, if you are eligible for disability benefits (SSDI), you cannot work. Therefore, working while receiving disability benefits will most likely cause your benefit payments to stop.
Social Security Earned Income Limits for 2024 & 2025
| Age | Earned Income Limit For 2024 | Earned Income Limit For 2025 | Witholding 2024/2025 |
|---|---|---|---|
|
Under Full Retirement Age |
$22,320 |
$23,400 |
Benefit decreases by $1 for every $2 over the limit |
|
Year You Reach Full Retirement Age |
$59,520 |
$62,160 |
Benefit decreases by $1 for every $3 over the limit |
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What Income Counts Toward The Social Security Earnings Limit?
You might receive income from many different sources. Some familiar sources include income from a job, self-employment income, interest income, and income from retirement accounts, like an IRA or pension.
Included Income
So, what income counts toward the Social Security earnings limit? Generally, only earned income counts toward the limit. This includes wages from employment or net earnings from self-employment. The Social Security Administration does include bonuses, commissions, and vacation pay in these calculations.
Excluded Income
Many types of income do not count toward the earnings limit.
- Income from most retirement plans, like distributions from an IRA or 401k, does not count toward the limit.
- Similarly, income from capital gains, pensions, investment income, interest income, veterans’ benefits, and military retirement benefits does not count toward the limit.
You can earn an unlimited income from these sources without any effect on your Social Security benefits. Even though income from these sources might not count toward the Social Security limit, the IRS does count most of this income as taxable for income tax purposes.
SSI Income Rules
The rules regarding Supplemental Security Income (SSI) benefits are slightly different. Remember that SSI benefits are only for those with limited income and resources. For SSI, the Social Security Administration will count almost all income sources. So, if you receive a significant income from a retirement account, you will likely not be eligible for SSI payments.
How Your Retirement Age Affects The Earnings Limit
Full Retirement Age (FRA) Guide
We have mentioned a few times that the earnings limit changes the year you reach full retirement age. This is unlike the Social Security tax limit, which is always the same regardless of age. So, let’s discuss how that works. The full retirement age is 66 or 67 for most people, but it depends on the year you were born. Here is a chart showing your full retirement age based on your birth year.
| Year Born | Full Retirment Age |
|---|---|
|
Born Between 1943 and 1954 |
Age is 66 |
|
Born in 1955 |
Age is 66 and 2 months |
|
Born in 1956 |
Age is 66 and 4 months |
|
Born in 1957 |
Age is 66 and 6 months |
|
Born in 1958 |
Age is 66 and 8 months |
|
Born is 1959 |
Age is 66 and 10 months |
|
Born in 1960 or Later |
Age is 67 |
Some changes to Social Security are being discussed, including raising the full retirement age. However, no official changes have been made yet; these are today’s ages.
Reduction in Benefits
If you haven’t reached full retirement age yet, working can change your benefits in a big way. For every $2 you earn above the earnings limit, your benefits will be reduced by $1. As you near full retirement age, you can earn more money without affecting your benefits. Beginning in the year that you reach full retirement age, the earnings limit increases drastically. In addition, your benefits will decrease at a lower rate if you exceed the limit. During that year, your benefits will decrease by $1 for every $3 you earn above the limit.
Once you reach full retirement age, you no longer have to worry about the earnings limit! There is no limit to how much you can earn, and the earnings can come from any source. Your earnings will no longer have any impact on your Social Security benefits. You will receive your full benefits regardless of how much other income you might earn.
TIP
The Social Security income limit increases the year you become eligible for FRA. It also only applies to the months before reaching FRA. This allows you to earn quite a bit of money before your birthday without having your benefits reduced.
Consider The Timing Of Your Income
Generally, the timing of your income is pretty straightforward. You work at a job and get paid within a week or so. There is not much confusion that arises in that basic situation. However, other conditions could create some confusion. For example, imagine earning money before becoming eligible for benefits, but you don’t receive the funds until after you have filed for Social Security. Does that income count toward the limit or not?
Employee Wages
Social Security has some rules about the timing of your income, which differ depending on whether the income was earned as an employee or a self-employed individual. For employees, the Social Security Administration says income counts when earned, not when received. So, in the situation above, those earnings would not count toward the limit because the income would be counted when you earned it.
Self-Employed Earnings
On the other hand, the Social Security Administration says that self-employment income is counted when it is received instead of when it is earned. There is an exception to this rule, though. The rule states that the income counts when it is received “unless paid in a year after you become entitled to Social Security and you earned it before you became entitled.” So, what does this mean for you?
Consider this self-employment example. Suppose you earn money through self-employment in December. You start your Social Security benefits in January and then receive payment in February for your work in December. Usually, that payment would count as income in February. However, since you are now entitled to Social Security and the work was performed before you became entitled to benefits, the income would not count against you. In this case, Social Security would consider that money as income in December.
When You Need To Notify The Social Security Administration Of Additional Income
So, when should retirees notify the Social Security Administration that they will have additional earned income? A good rule of thumb is always to inform the Social Security Administration if you are working while receiving benefits. If you have already reached full retirement age, you do not need to worry about notifying them. But if you have not yet reached full retirement age, you should tell them you are earning income that could count toward the earnings limit.
Repayment of Overpayment
You need to tell the SSA so that they can adjust your benefits correctly if they need to. Failure to notify the Social Security Administration of your income could lead to an overpayment. In that case, they will demand repayment of the overpayment, and you might only have 30 days to repay the money. You could find yourself stuck in a bad spot if you allow them to overpay your benefits, and then you need to repay the overage quickly.
It’s always best to notify the SSA upfront so that your benefits can be decreased once you hit the earnings limit. This is especially crucial when you have self-employment income; otherwise, they will not know about this income until you file your taxes. This could lead to you owing a big check to the Social Security Administration when tax season rolls around.
The Bottom Line
Working after you start receiving Social Security benefits can impact your benefit payments. But what income counts toward the Social Security earnings limit? Generally, only earned income counts toward the limit. This includes wages from a job and self-employment income.
Other income sources, like capital gains, interest income, and income from retirement accounts, do not count toward the limit. Once you reach full retirement age, the limit goes away. You can then earn unlimited income without any impact on your monthly benefit payment.
Frequently Asked Questions
Many types of income are not considered earned income for Social Security, and these income sources will not count toward the earnings limit.
Some examples are Interest, capital gains, pensions, and other types of income that don’t come from working. You can receive unlimited income from these sources without any impact on your Social Security benefits.
Earned income for Social Security purposes is earned by working at a job or through self-employment. This includes wages, bonuses, commissions, and vacation pay. For self-employment, it includes net income, not gross income.
Earned income counts toward the maximum amount you can make and still get Social Security. Your monthly Social Security payments could be cut if you make more than the maximum amount. Do pensions count as earned income? The answer is no, and neither do capital gains, interest income, IRAs, or other distributions.
Earned income can reduce your Social Security benefits. Unearned income, like interest income, capital gains, IRA distributions, and others, will not reduce your Social Security benefits.
Remember that earned income will only reduce your benefits before you reach full retirement age. Once you hit full retirement age, you can earn an unlimited income from any source. The Social Security earnings limit will no longer apply.
Unearned income does not count under the earnings test. Unearned income includes pensions, distributions from retirement accounts, interest, capital gains, and other income not earned by working at a job.
The two main types of income that count toward the earnings limit are wages from employment and net profit from self-employment.
The Social Security earnings limit is based on your age. Before you reach full retirement age, the maximum earnings for Social Security are $22,320. For 2025, this will increase to $23,400.
In the year you reach full retirement age, the earnings limit is increased to $59,520. This rises to $62,160 in 2025. Once you reach full retirement age, the limit goes away. At that time, you can earn unlimited income from any source without impacting your benefits.
You can find a Social Security Administration office near you by using our SSA office locator and searching for your closest location.
