Working Part-Time and Social Security Earnings Tests
Many people continue working part-time after claiming Social Security benefits. If you're below your full retirement age (FRA), earnings above certain limits will temporarily reduce your benefits. Understanding these rules helps you plan how much to work and when to claim.
Full Retirement Age Reference
Your full retirement age depends on your birth year:
| Birth Year | Full Retirement Age |
|---|---|
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
The earnings test only applies if you've claimed benefits AND are below your FRA. Once you reach FRA, there is no earnings limit.
The Earnings Test: Before Full Retirement Age
If you claim Social Security before your FRA and continue working, the earnings test reduces your benefits when you earn above the annual limit.
2024 Earnings Test Limits:
| Situation | Annual Limit | Reduction Rate |
|---|---|---|
| Under FRA for entire year | $22,320 | $1 withheld per $2 over limit |
| Year you reach FRA (months before FRA) | $59,520 | $1 withheld per $3 over limit |
| At or above FRA | No limit | No reduction |
Only earned income counts toward the limit. This includes wages, salaries, bonuses, and net self-employment income. It does not include pensions, investment income, interest, capital gains, or other retirement account withdrawals.
How the Reduction Works
When you exceed the earnings limit, Social Security withholds benefits rather than sending reduced monthly checks. They typically withhold full monthly benefits at the start of the year until the excess is covered.
Example: Exceeding the limit by $10,000
If you earn $32,320 (which is $10,000 over the $22,320 limit):
- Reduction: $10,000 / 2 = $5,000 withheld
- If your monthly benefit is $2,000, Social Security withholds 2.5 months of benefits
Social Security may withhold benefits at the beginning of the year based on your expected earnings, then reconcile after the year ends based on actual earnings.
Worked Example: Earning $40,000 at Age 63 with $2,000 Benefit
Michael is 63 years old. His FRA is 67. He claimed Social Security early and receives $2,000 per month ($24,000 per year). He's considering a part-time job paying $40,000 per year.
Step 1: Calculate excess earnings
| Item | Amount |
|---|---|
| Annual earnings | $40,000 |
| 2024 earnings limit | $22,320 |
| Excess earnings | $17,680 |
Step 2: Calculate benefit reduction
| Calculation | Amount |
|---|---|
| Excess earnings | $17,680 |
| Reduction rate | $1 for every $2 |
| Annual benefit reduction | $8,840 |
Step 3: Determine net Social Security received
| Item | Amount |
|---|---|
| Annual benefit without working | $24,000 |
| Reduction from earnings test | -$8,840 |
| Net Social Security received | $15,160 |
Michael receives $15,160 in Social Security benefits while earning $40,000 from work. His total income is $55,160.
Step 4: Benefit restoration at FRA
The $8,840 withheld is not permanently lost. When Michael reaches FRA at 67, Social Security recalculates his benefit to credit him for the months benefits were withheld.
| Item | Monthly Amount |
|---|---|
| Original reduced benefit (claimed at 63) | $2,000 |
| Months of benefits withheld | 4.4 months |
| Adjustment at FRA | +$55-65/month |
| New monthly benefit at FRA | ~$2,060 |
The exact adjustment depends on how Social Security calculates the restoration, but Michael will receive higher monthly benefits from FRA forward to compensate for the withheld amounts.
The Year You Reach FRA
In the calendar year you reach FRA, a more generous limit applies, but only for the months before you reach FRA.
2024 limits for the year you reach FRA:
| Item | Amount |
|---|---|
| Annual earnings limit | $59,520 |
| Monthly limit (used for monthly test) | $4,960 |
| Reduction rate | $1 for every $3 over |
Example: Reaching FRA in September
Linda turns 67 (her FRA) in September 2024. She earns $6,000 per month from January through August (8 months before FRA).
| Calculation | Amount |
|---|---|
| Earnings Jan-Aug | $48,000 |
| Limit for year of FRA | $59,520 |
| Excess earnings | $0 |
Linda's earnings are below the $59,520 limit, so no benefits are withheld. Starting in September (her FRA month), there is no earnings limit at all.
If Linda earned $8,000 per month instead:
| Calculation | Amount |
|---|---|
| Earnings Jan-Aug | $64,000 |
| Limit for year of FRA | $59,520 |
| Excess earnings | $4,480 |
| Reduction ($1 per $3) | $1,493 |
Linda would have $1,493 in benefits withheld, less than one month's benefit.
After Full Retirement Age: No Earnings Test
Once you reach FRA, you can earn any amount without affecting your Social Security benefits. You'll still pay income taxes on the earnings, and high income may trigger:
- Taxation of up to 85% of Social Security benefits
- IRMAA surcharges on Medicare premiums (based on income from two years prior)
But the Social Security earnings test itself no longer applies.
First-Year Monthly Earnings Rule
In the first year you claim benefits, Social Security can use a monthly test instead of the annual test if it benefits you. This helps people who retire mid-year after earning a high salary.
2024 Monthly Limit:
| Test Type | Limit |
|---|---|
| Annual test | $22,320/year |
| Monthly test (if more favorable) | $1,860/month |
Example:
Janet earns $150,000 from January through June, then retires and claims Social Security in July. Under the annual test, she would exceed the limit significantly. Under the monthly test, she can receive full benefits for any month she earns $1,860 or less, regardless of earlier earnings.
This rule only applies in your first year of benefits and only for months you both earn under the monthly limit and receive benefits.
Income That Doesn't Count
The earnings test only considers earned income. These sources do not count:
| Income Type | Counts Toward Limit? |
|---|---|
| Wages and salary | Yes |
| Self-employment net income | Yes |
| Bonuses and commissions | Yes |
| Pensions | No |
| 401(k) or IRA withdrawals | No |
| Investment income (dividends, interest) | No |
| Capital gains | No |
| Rental income (if not actively managed) | No |
| Social Security benefits | No |
| Annuity payments | No |
This distinction matters for planning. If you need $50,000 in annual income, you could earn $22,320 from work and take $27,680 from retirement accounts without any benefit reduction.
Strategies for Working While Receiving Benefits
Strategy 1: Stay under the limit
If your benefit reduction would exceed your net earnings above the limit, it may make sense to limit work hours.
| Scenario | Earnings | Benefit Lost | Net Gain from Working |
|---|---|---|---|
| At limit | $22,320 | $0 | $22,320 |
| $5,000 over | $27,320 | $2,500 | $24,820 |
| $10,000 over | $32,320 | $5,000 | $27,320 |
You're never worse off by earning more (since you only lose $1 for every $2 earned), but the marginal benefit decreases.
Strategy 2: Delay claiming until FRA
If you plan to work significantly, delaying Social Security until FRA avoids the earnings test entirely and increases your eventual benefit.
| Claim Age | Monthly Benefit (Example) | Earnings Test? |
|---|---|---|
| 62 | $1,400 | Yes, until FRA |
| 64 | $1,600 | Yes, until FRA |
| 67 (FRA) | $2,000 | No |
| 70 | $2,480 | No |
Strategy 3: Accept the reduction
Since withheld benefits are restored at FRA through a benefit recalculation, some people choose to work freely and accept the temporary reduction.
Tax Considerations
Working while receiving Social Security creates multiple tax considerations:
| Factor | Impact |
|---|---|
| Earned income | Taxed at ordinary rates |
| Social Security taxation | More likely to hit 85% taxable threshold |
| FICA taxes | You continue to pay (may slightly increase future benefits) |
| State taxes | Vary by state |
Your combined income (wages plus Social Security plus other income) determines how much of your Social Security is taxable.
Checklist: Working Part-Time While Receiving Social Security
- Determine your full retirement age based on your birth year
- Know the current year's earnings limit ($22,320 for 2024 if under FRA all year)
- Calculate how much your expected earnings exceed the limit
- Estimate your benefit reduction ($1 withheld per $2 over limit)
- Understand that withheld benefits are restored at FRA through recalculation
- In the year you reach FRA, use the higher limit ($59,520) for months before FRA
- Remember that only earned income counts (not pensions, investments, or retirement account withdrawals)
- Consider whether delaying Social Security makes sense if you plan substantial work
- Factor in income taxes on wages and potential increase in Social Security taxation
- Report any expected earnings changes to Social Security to avoid overpayment issues
- If retiring mid-year, ask about the first-year monthly earnings rule
- After reaching FRA, earn freely without any earnings test reduction