If you work and you receive Social Security at the same time, you may have some of your Social Security withheld if you make above the threshold: known as Social Security Income Limits. Don’t worry, the amount withheld from your Social Security will be paid out to you later.
There are two income thresholds that you need to worry about:
- early retirement ages 62 through the year before your full retirement age
- year in which you reach full retirement age (the SSA calls this normal retirement age or NRA).
There is no earnings limit after you reach full retirement age.
The chart below shows the income thresholds before the SSA will start withholding.
If you’re 62 and make above $16,920 in 2017, your Social Security will be withheld at a rate of $1 for every $2 you make above the limit.
If you’re 66 (and that’s your NRA), and you make above $44,880 , your Social Security will be withheld at a rate of $1 for every $3 you make above the limit (only applies in the year in which you turned 66).
Let’s say you make $32,920 in 2017 and you told the SSA that you plan to make this amount ahead of time when you filed.
They will withhold the first $8,000 in Social Security payments during 2017 ($16,000 made above the limit divided by 2), then pay you the regular payment amount for the rest of the year.
If your regular payment amount at age 62 is $1,000 per month, the SSA will withhold your payment from January – August, then start paying you $1,000 in September until the end of the year.
Then when you hit full retirement age, you’ll get the $8,000 that was withheld when you were 62 but it will be recalculated into your monthly payment.
Online Income Limit Calculator
The SSA also has a calculator at their site which will enable you to see how much they will reduce your benefit.
SSA Income Limit Calculator:
This is something I’d usually create a spreadsheet for, but since it’s already online and works great there’s no need.
Types of Income Used to Calculate the Income Limits
W2 earnings and self-employment net income are included in the calculation of income used to determine the income limit. Bonus pay, vacation, and commissions all count toward the income limits.
There are many types of income that the Social Security doesn’t count toward the limit:
- Investment Income
- Rental Income (if you didn’t materially participate in management)
- Payments from IRAs
Another great benefit of having streams of investment income in retirement is that they don’t count in income for Social Security income limit purposes. You could claim Social Security early, take a reduced benefit, and have your investment income subsidize your lifestyle without being penalized.
Will I Receive Any Social Security Payments If I Work and Am Under My Full Retirement Age?
You’ll receive Social Security payments if you work and make under $16,920 per year. For every $2 you make over $16,920, the SSA will withhold $1 in Social Security Income. These payments will be withheld at the beginning of the year based on the amount you tell the SSA.
See the example above for more details.
What If I Tell Social Security I Will Make More Than What I Actually Do?
If you make less than you told the SSA you would make that year, you can simply call them or go to their website and let them know of your income changes. They will adjust your SS income based on your updated numbers. Reporting changes in your income to the SSA is your responsibility.
If you don’t report changes in your income to the SSA, you will be paid at incorrect rates and may have lump sum adjustments to pay / owed.
Similar to the exemption amount on your W4, if you don’t report the right number of exemptions, you may owe a lot in taxes or be due a big refund. You don’t really want either of these so let the SSA know if your income changes by an annualized rate of 10% or $2,000, whichever is larger.
Is It Beneficial To Work While Collecting Social Security?
If you filed for early Social Security and decide you want to work, then it becomes financially beneficial for your future self to work now and have money withheld.
In fact, if you’ve filed early and changed your mind (maybe you want to go back to work), you can always contact the SSA and withdraw your application for benefits within 12 months. This has a similar effect as working a lot while receiving early SS benefits: you’ll get more in the future if you withdraw your application now.
Alert: You can’t withdraw your early SS claim after 12 months.
If it’s been over 12 months and you’d like withdraw your SS benefits, you won’t be allowed. The best thing to do in this scenario is generally to work and make more than the income limit – much more – so that your benefits will be withheld and credited back to you at a later date.
How Withholding Works
After you call the SSA and let them know how much you expect to make in any given year, they will place a withholding on your account. Usually, your payments will be withheld at the beginning of the year.
If you tell SSA your estimated annual earnings and they say your withholding will be $8,000 for the year, then you should expect to receive any SS income for the first part of the year. If your monthly SS income is $1,000, they’ll withhold the entire monthly check for eight months straight. Then starting in September you’ll receive $1,000 per month.
Optimizing Your Benefits While Working
Since it’s actually very beneficial to work while you’re claiming early Social Security, it’s recommended (based strictly on math) to keep working if you want to maximize your benefit.
Yes, the SSA will withhold your payments at the beginning of each year in early retirement, but you’ll get this money back in the form of a higher recalculated benefit later.
Sure, there are many other aspects to look at when deciding if you want to work while claiming SS benefits.
If you the can make ends meet without claiming early SS benefits (age 62 – just under your full retirement age), it’s likely better to wait and not file.
If you need claim early benefits but still want to work, then don’t worry so much about the income limits. It’s not lost income; it’s just deferred.
Don’t look at withholding as a penalty. Instead, look at it as your SS benefit growing because you’re able to work.
Please see the SSA’s PDF here for more information on working while receiving early benefits.