Working while getting Social Security benefits can be tricky. Many retirees worry that their extra income could mean less money in their monthly checks. I’ve done a lot of research on this subject to help you understand what kinds of income can affect your benefits and how much you can earn before your benefits go down.
The Quick Answer
Not all income affects your Social Security benefits. Only earned income from employment or self-employment can reduce your benefits, and this only happens if you’re collecting Social Security before reaching your full retirement age. Investment income, pensions, and other unearned income don’t count against your benefits at all!
Understanding the Social Security Earnings Test
The Social Security Administration uses something called the “earnings test” to determine if your benefits should be reduced based on your work income This test only applies to people who
- Have started collecting retirement or survivor benefits
- Have not yet reached their full retirement age (FRA)
- Are earning income from employment or self-employment
Your full retirement age depends on when you were born. For most people retiring now, it’s between 66 and 67 years old. For people born after 1960, the full retirement age is 67.
Income That Reduces Your Social Security Benefits
Let’s be super clear about what type of income can actually reduce your benefits:
Income That DOES Count Against the Earnings Limit:
- Wages from employment (your gross wages before deductions)
- Net earnings from self-employment
- Bonuses
- Commissions
- Vacation pay
- Salary
- Tips
If you’re still working for someone else, the Social Security Administration looks at your gross wages—that’s your total pay before taxes and other deductions come out.
For people who are self-employed, they look at your net earnings, which is the amount left over after you take out your legitimate business costs.
Income That DOES NOT Reduce Your Benefits
The good news is that many types of income won’t change your Social Security benefits:
- Dividends from stocks
- Interest from savings accounts or bonds
- Capital gains from investments
- Rental income from property
- Pensions and annuities
- IRA or 401(k) distributions
- Inheritances
- Veterans benefits
- Government retirement benefits
- Military retirement pay
- Income earned before you started receiving benefits
- Lawsuit settlements
This is important to understand—you can have substantial investment income, pension payments, and retirement account withdrawals without worrying about your Social Security benefits being reduced.
2025 Earnings Limits and Reduction Formulas
The Social Security Administration adjusts the earnings limits each year for inflation. For 2025, here’s what you need to know:
If You’re Under Full Retirement Age for the Entire Year
- The earnings limit is $23,400 for 2025
- Benefits are reduced by $1 for every $2 you earn above this limit
In the Year You Reach Full Retirement Age
- The earnings limit is much higher: $62,160 for 2025
- Benefits are reduced by $1 for every $3 you earn above this limit
- This higher limit only applies to earnings in the months before the month you reach your full retirement age
After You Reach Full Retirement Age
- There is NO limit on how much you can earn
- Your benefits will never be reduced because of earnings
How the Reduction Actually Works
Let me show you how this works with an example:
Example 1: You’re 65, receiving $1,000 per month in Social Security benefits ($12,000 annually), and will be under full retirement age the entire year. You work part-time and earn $25,000 for the year.
Since you earned $1,600 above the $23,400 limit, your benefits would be reduced by $800 ($1 for every $2 above the limit). Instead of receiving $12,000 for the year, you’d receive $11,200.
Example 2: You’ll reach full retirement age in November 2025. You receive $1,000 monthly in benefits and earn $65,000 from January through October (before reaching your FRA).
Since you earned $2,840 over the higher limit of $62,160, your benefits would be reduced by about $947 ($1 for every $3 above the limit). Once you reach FRA in November, you’ll receive your full benefit regardless of earnings.
The Reduction is Temporary, Not Permanent!
Here’s something most people don’t realize: These benefit reductions aren’t permanent losses. When you reach full retirement age, the Social Security Administration recalculates your benefit amount to give you credit for the months your benefits were reduced.
This recalculation results in a higher monthly payment for the rest of your life. So you’ll eventually get back the money that was temporarily withheld!
Working Can Actually Increase Your Benefits
There’s another benefit to working while receiving Social Security that’s often overlooked. If your recent earnings are higher than some of the earnings used to originally calculate your benefit, the Social Security Administration will automatically recalculate your benefit amount.
Each year, they review the records of all Social Security beneficiaries who had wages in the previous year. If your latest year of earnings turns out to be one of your highest earning years, they’ll increase your benefit amount retroactively to January of the year after you earned the money.
Special Rule for the First Year of Retirement
The SSA has a special rule that applies to earnings for one year, typically the first year of retirement. This rule lets you receive a full Social Security check for any month you’re considered “retired,” regardless of your yearly earnings.
You’re considered “retired” in any month your earnings are below a certain limit, which is 1/12 of the annual limit. For 2025, that’s $1,950 per month for people under full retirement age.
This special rule is helpful for people who retire mid-year after having substantial earnings in the earlier months.
What If I Live Outside the United States?
Different rules apply if you’re under full retirement age and working outside the United States. The SSA uses a different test for foreign work that applies regardless of how many hours you work. If you’re in this situation, make sure to read the SSA publication “Your Payments While You Are Outside the United States.”
Bottom Line: Know Before You Work
Understanding how working affects your Social Security benefits can help you make better decisions about when to start benefits and whether to continue working. Here’s my practical advice:
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If you’re significantly under your full retirement age and plan to earn a lot, consider delaying your Social Security benefits until you reach FRA to avoid the reduction.
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If you’re close to your full retirement age, the higher earnings limit might allow you to work and still receive most of your benefits.
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Remember that investment income doesn’t count against you at all, so you can have substantial passive income without affecting your benefits.
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Keep in mind that the withholding is temporary—you’ll get the money back in the form of higher monthly payments after reaching full retirement age.
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Consider consulting with a financial advisor who can help you strategize about the best time to claim benefits based on your specific situation.
Have you experienced reductions in your Social Security benefits due to working? I’d love to hear about your experiences in the comments below!
What Income Reduces Social Security Benefits? – CountyOffice.org
FAQ
What would cause my social security benefits to decrease?
For example, if your income from part-time work, retirement accounts, or other sources pushes you into a higher tax bracket, your withholding amount will …May 5, 2025.
What income stops Social Security?
What is the highest amount of income that is taxed for Social Security right now? The highest amount of income that is taxed for Social Security in 2025 is $176,100. We raise this amount yearly to keep pace with increases in average wages. There is no maximum earnings amount for Medicare tax.
What is one of the biggest mistakes people make regarding Social Security?
4 Social Security Mistakes That Could Derail Your RetirementNot knowing your Full Retirement Age (FRA) . Filing for benefits too early. Ignoring life expectancy in your decision. Overlooking the rules and flexibility of Social Security.
What are the three ways you can lose your Social Security?
You can lose or have your Social Security benefits reduced through incarceration, working while receiving benefits before full retirement age, or earning too much income while receiving Social Security Disability Insurance (SSDI) benefits. Other ways include Social Security fraud such as misrepresenting income or medical condition, and receiving benefits while a non-U. S. citizen living abroad for an extended period. Finally, benefit garnishments for unpaid taxes, child support, or student loan debt can also lead to a reduction or suspension of benefits.
How much does social security reduce benefits?
This is the amount by which Social Security will reduce the annual benefit. People can earn $62,160 before reaching full retirement age without affecting their benefits. And the amount of reduction is also just $1 for every $3 earned over the cap. In addition, income only counts against the cap until the month before full retirement age is reached.
Does earning income affect Social Security benefits?
Earning income while receiving Social Security benefits can impact the amount you receive, but only under specific circumstances. The Social Security Administration (SSA) may reduce benefits for individuals who claim them before reaching full retirement age and continue to work.
Can SSA reduce Social Security benefits if you still work?
The Social Security Administration (SSA) may reduce benefits for individuals who claim them before reaching full retirement age and continue to work. However, this reduction applies only to earned income from employment or self-employment.
How do Social Security benefits work?
The more you earn, and the longer you earn it, the higher your benefit amount will be. Your Social Security benefits are based on the income you earned during your working years. Your benefits are permanently reduced if you take Social Security before you reach your full retirement age.
What counts as income for Social Security benefits?
The Social Security Administration has specific guidelines that define what counts as income for this purpose, known as the earnings test. The Social Security earnings test is a rule the Social Security Administration (SSA) uses to determine if your benefits should be reduced based on your work-related income.
Does social security pay taxes on earnings?
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. In the calendar year you reach full retirement age, the income limit increases to $59,520.