You claimed Social Security at 63 and then took a part-time consulting job that pays more than expected. A letter arrives saying some benefits will be withheld. Many people think they are being penalised permanently for working. They are not — but the earnings test can still disrupt cash flow if you do not plan for it.
Key Takeaways
- If you collect benefits before full retirement age and earn above an annual limit, Social Security withholds some benefits.
- Before the year you reach full retirement age, $1 is withheld for every $2 earned above the limit.
- In the year you reach full retirement age, a higher limit applies and $1 is withheld for every $3 above it, counting only earnings before the month you reach FRA.
- Withheld benefits are not lost: at full retirement age, your benefit is recalculated to credit the months withheld.
Earnings limits change each year. Check the current figures at ssa.gov.
Who the earnings test applies to
The earnings test applies only if:
- You are receiving Social Security retirement, spousal or survivor benefits, and
- You are younger than full retirement age.
Once you reach full retirement age, there is no limit on how much you can earn.
The two limits
The earnings test has two annual thresholds, adjusted each year for wage growth. For 2025, they were $23,400 and $62,160.
Years before the year you reach FRA. If you earn above the lower limit, Social Security withholds $1 of benefits for every $2 you earn above it.
The calendar year you reach FRA. A higher limit applies. Social Security withholds $1 for every $3 above it, counting only earnings before the month you reach FRA.
There is also a special monthly rule for the first year of retirement, which allows a full benefit for any month you earn below a monthly limit and do not perform substantial services in self-employment, regardless of annual earnings.
What counts as earnings
The test counts wages from employment and net earnings from self-employment. It does not count:
- Pensions
- Investment income
- Interest and dividends
- Capital gains
- Rental income (in most cases)
- Annuities
- IRA and 401(k) withdrawals
How withholding works in practice
Social Security does not reduce each monthly check slightly. Instead, it usually withholds whole monthly payments at the start of the year until the required amount has been withheld.
Example
Suppose you are 63, your benefit is $1,500 a month, and the lower annual limit is $24,000. You expect to earn $36,000.
- Earnings above the limit: $12,000
- Withholding: $12,000 ÷ 2 = $6,000
- Social Security might withhold your first four monthly payments ($6,000) and then pay the remaining eight months normally.
You should report expected earnings to Social Security so withholding can be calculated. If you underestimate, you may receive an overpayment notice later.
The recalculation at full retirement age
At full retirement age, Social Security recalculates your benefit to account for months when benefits were withheld. It treats those months as if you had not claimed, reducing the early-claiming penalty.
In the example above, if four months were withheld, your benefit at FRA would be recalculated as if you had claimed four months later. Over time, you can recover the withheld amounts through higher monthly payments.
Planning tips
- Estimate earnings carefully and update Social Security if your income changes.
- Consider delaying your claim if you plan to work substantially before FRA. Withholding may make early claiming less useful.
- Plan for cash flow. Withholding at the start of the year can leave a gap.
- Remember it affects family benefits. Your earnings can also reduce spousal or child benefits paid on your record.
Frequently Asked Questions
Does the earnings test apply after full retirement age? No. You can earn any amount without withholding.
Do bonuses count? Wages are generally counted when earned. Special rules apply to some payments.
Does my spouse’s income affect my benefit? Only your own earnings count toward your earnings test.
Is it better not to claim if I am working? If you plan to earn well above the limit, delaying may be simpler and avoids withholding.
The bottom line
The earnings test delays benefits rather than taking them away, but it can create cash-flow surprises. If you plan to work before full retirement age, estimate your earnings and decide whether claiming early still makes sense.
