Many people start Social Security retirement benefits before reaching full retirement age and keep working, at least part time. If you do, the Social Security earnings test, officially the retirement earnings test, may temporarily reduce your benefits. The rule is widely misunderstood: the benefits withheld are not lost permanently. This guide explains how the test works, which income counts, and how to plan around it.
What the earnings test is
If you are younger than full retirement age (FRA) and receive Social Security retirement, spousal, or survivor benefits, the Social Security Administration (SSA) withholds some benefits if your earnings exceed an annual limit. Once you reach FRA, the test no longer applies, and you can earn any amount without benefit withholding.
FRA depends on your birth year. It is 66 and a few months for people born from 1955 through 1959, and 67 for anyone born in 1960 or later.
The earnings test does not apply to Social Security Disability Insurance (SSDI), which has separate work rules, or to Supplemental Security Income (SSI).
The two annual limits
There are two thresholds, adjusted annually for wage growth:
- In years before the year you reach FRA, SSA withholds $1 in benefits for every $2 you earn above the lower annual limit.
- In the calendar year you reach FRA, SSA withholds $1 for every $3 you earn above a higher limit, counting only earnings before the month you reach FRA.
According to SSA, the exempt amounts are:
| Year | Lower limit (years before FRA) | Higher limit (year of FRA) |
|---|---|---|
| 2025 | $23,400 | $62,160 |
| 2026 | $24,480 | $65,160 |
| 2027 | $25,560 | $67,920 |
SSA announces new figures each October; check ssa.gov for the current year’s numbers.
Example: years before FRA
Sam is 63 and claims a benefit of $1,500 a month, or $18,000 a year. He earns $33,400 in 2025, which is $10,000 above the $23,400 limit. SSA withholds $5,000, one dollar for every two dollars over the limit. In practice, SSA usually withholds whole monthly checks at the start of the year until the full amount has been withheld, so Sam would receive no benefit for the first four months and part of the fifth, then full benefits afterward.
Example: year of FRA
Lena reaches FRA in October 2025. From January through September, she earns $70,160, which is $8,000 above the $62,160 limit. SSA withholds about $2,667, one dollar for every three dollars over. Earnings from October onward do not count.
The special first-year monthly rule
The first year you retire, you may earn more than the annual limit but stop working midyear. A special rule lets SSA pay a full benefit for any non-service month, regardless of annual earnings. A non-service month is one in which:
- Your wages do not exceed a monthly limit, which is one-twelfth of the annual limit, and
- You do not perform substantial services in self-employment.
For example, someone retiring at 62 in June after earning $80,000 in the first half of the year can receive benefits for July through December if monthly earnings stay below the monthly limit. This rule usually applies only in the first year with a non-service month.
What counts as earnings
Counted earnings include:
- Wages from employment, counted when earned rather than when paid
- Net earnings from self-employment, counted when received
Earnings that do not count include:
- Pensions and annuities
- Investment income, such as dividends, interest, and capital gains
- Rental income, unless you are a real estate professional
- IRA and 401(k) withdrawals
- Government benefits
- Jury duty pay
Bonuses, vacation pay, and sick pay earned before retirement but paid afterward generally do not count as earnings in the year paid. Self-employed people should be aware that SSA also looks at hours worked, generally treating more than 45 hours a month as substantial services, although less than 15 hours is generally not substantial.
Withheld benefits are not lost
This is the most important point. When you reach FRA, SSA recalculates your monthly benefit to credit you for months in which benefits were withheld. In effect, those months are treated as if you had not claimed yet, so your reduction for early claiming shrinks.
For example, if you claimed at 62 and SSA withheld 12 months of benefits before FRA, your benefit at FRA is recalculated as if you had claimed 12 months later. Over a normal lifespan, you can recover much or all of the withheld amount, though the recovery is spread over many years.
Effects on family members
If your benefits are withheld because of your earnings, benefits paid to family members on your record, such as a spouse or minor children, can also be reduced. However, if a spouse or survivor who receives benefits works and exceeds the limit, only that person’s benefits are affected.
Reporting your earnings
SSA estimates withholding based on your expected earnings. You should:
- Tell SSA your expected earnings when you apply.
- Update the estimate during the year if your earnings change.
- Correct overpayments quickly. If you earn more than reported, SSA may later send an overpayment notice requiring repayment.
SSA also uses W-2 and self-employment tax data to reconcile withholding after the year ends.
Planning strategies
- Delay claiming until you stop working or reach FRA if you expect earnings well above the limit. Claiming early only to have benefits withheld can complicate your finances.
- Time your retirement date to use the first-year monthly rule.
- Consider deferred compensation carefully; payments for work done earlier may not count, but documentation matters.
- Remember taxation of benefits. Separately from the earnings test, up to 85% of benefits can become taxable when combined income exceeds certain thresholds.
- Weigh spousal impacts before claiming early while working.
A planning example
Consider Maria, born in 1964, whose FRA is 67. She plans to leave her full-time job at 63 but expects to keep consulting for about $40,000 a year until 65. If she claims at 63, much of her benefit would be withheld each year because her earnings exceed the lower limit by a wide margin. The withheld months would eventually be credited back at FRA, but she would have little monthly cash flow from Social Security in the meantime and would lock in paperwork and possible overpayment notices. Waiting until she stops consulting at 65, or until FRA, would produce a larger monthly benefit and avoid the hassle. On the other hand, if her consulting income were around the earnings limit, claiming at 63 might result in only a few withheld months.
Earnings test versus taxes on benefits
People often confuse the earnings test with income tax on benefits. They are separate rules. The earnings test temporarily withholds benefits before FRA based only on work earnings. Income taxation of benefits applies at any age and is based on combined income, which includes half of your benefits plus other income such as pensions, withdrawals, and interest. You may face one, both, or neither.
Where to get help
SSA offers an online earnings test calculator and a benefit estimator through a my Social Security account. You can report earnings changes online, by phone, or at a local office. Keeping your own record of monthly earnings during the first year of retirement makes it easier to apply the monthly rule correctly.
Related reading: Backdoor Roth IRA: Step-by-Step Rules, the Pro-Rata Trap, and Reporting on Form 8606 and Solo 401(k): Contribution Rules for Self-Employed Savers.
Frequently Asked Questions
Does the earnings test apply after full retirement age?
No. Starting the month you reach FRA, you can earn any amount without benefit withholding.
Are withheld benefits lost forever?
No. At FRA, SSA recalculates your benefit to credit the months withheld, increasing future monthly payments.
Do investment income and pensions count?
No. Only wages and net self-employment earnings count toward the earnings test.
What is the first-year rule?
In your first year of retirement, you can receive a full benefit for any month in which your earnings are below the monthly limit and you do not perform substantial self-employment services.
Does the earnings test affect disability benefits?
No. SSDI has separate work rules, including the trial work period and substantial gainful activity limits.
This article is for general informational purposes only and is not legal, medical, tax, or financial advice. Rules vary by state and change over time; confirm details with the relevant agency or a licensed professional.
