Understanding the Social Security Earnings Test
The Social Security Earnings Test determines how much you can earn from working while receiving Social Security benefits. These rules vary based on whether you are under, in the year of, or at or over your full retirement age (FRA). Only earned income like wages and net self-employment earnings count; other income such as pensions or investments does not.
Earnings Limits Before Full Retirement Age
If you claim benefits before your FRA, an annual earnings limit applies. Exceeding this limit results in a temporary reduction in benefits, which are later credited back to you through higher monthly payments once you reach your FRA.
For 2025, the annual limit for those under FRA for the entire year is $23,400. For every $2 earned over this limit, $1 is deducted from your benefits. This limit is adjusted annually for wage changes.
Rules for the Year You Reach Full Retirement Age
A different, higher earnings limit applies in the year you reach your FRA, but only to earnings before the month you reach your FRA. For 2025, this limit is $62,160. The deduction is $1 for every $3 earned over this limit. Once you reach your FRA month, the earnings test no longer applies for the rest of the year.
What Happens After You Reach Full Retirement Age?
Upon reaching your FRA, the earnings limit is removed. You can earn any amount from working without impacting your Social Security benefits. Benefits previously withheld are also factored into a higher monthly payment amount.
What Income Counts Towards the Limit?
The earnings test only considers income from wages and net earnings from self-employment. There's also a monthly test for self-employed individuals in their first year of retirement before FRA to determine if they are considered retired based on earnings and hours worked.
Income types that do not count towards the limit include pensions, annuities, investment income, and government/military retirement benefits.
Impact of Earning on Your Taxes
Working in retirement can also affect the federal taxation of your Social Security benefits. Based on your provisional income (adjusted gross income + tax-exempt interest + half of Social Security benefits), up to 50% or 85% of your benefits may be taxable.
- Up to 50% taxable for provisional income between $25,000 and $34,000 (individual) or $32,000 and $44,000 (joint).
- Up to 85% taxable for provisional income exceeding $34,000 (individual) or $44,000 (joint).
Working with an Example
Let's compare the impact of earnings under different scenarios relative to FRA.
The Comparison Table
| Scenario | Age Relative to FRA | 2025 Earnings | Earnings Over Limit | Benefit Reduction | Notes |
|---|---|---|---|---|---|
| Scenario 1 | Under FRA all year | $35,000 | $11,600 ($35k - $23,400) | $5,800 ($11,600 / 2) | Annual benefits reduced by half of excess earnings. |
| Scenario 2 | Reach FRA in 2025 | $75,000 (earned before FRA) | $12,840 ($75k - $62,160) | $4,280 ($12,840 / 3) | Annual benefits reduced by one-third of excess earnings before FRA month. |
| Scenario 3 | At or over FRA all year | $100,000 | $0 | $0 | No earnings limit, no reduction. |
This table highlights how reaching FRA eliminates the earnings test impact. For further details and an official calculator, visit the Social Security Administration website.
Conclusion
The amount a retired person can earn while collecting Social Security benefits hinges on their age relative to their full retirement age. Earnings limits apply before FRA and, with a higher threshold, in the year of reaching FRA for earnings prior to that month. Once full retirement age is reached, there is no limit on earnings. Understanding these rules is vital for retirees who continue to work to manage their finances effectively and avoid unexpected benefit reductions.
