What Social Security counts as earnings
Social Security counts wages from a job and net income from self-employment toward your annual earnings. The program does not count retirement account withdrawals, investment income, pensions from other sources, or money from rental property. Only money you earn by working — whether as an employee or self-employed — affects your benefit amount.
If you work and collect Social Security before your full retirement age, Social Security will reduce your monthly benefit by $1 for every $2 you earn above the annual limit. The limit changes each year. Once you reach your full retirement age, the earnings limit no longer applies, and you can work and collect your full benefit at the same time.
The earnings calculation matters most if you claim Social Security before age 66 or 67 (depending on your birth year). If you wait until your full retirement age or later, your earnings no longer reduce your monthly check.
Key Takeaways
- Social Security only counts wages and self-employment income, not retirement withdrawals, investments, or pensions from other sources.
- If you claim before your full retirement age and earn above the annual limit, Social Security reduces your benefit by $1 for every $2 you earn over that amount.
- The earnings limit applies only to the year you claim and the years before you reach full retirement age; it stops explore once you hit that age.
- You report your earnings to Social Security on your tax return or through a direct report if you are self-employed.
The annual earnings limit and how it reduces your benefit
Social Security sets an annual earnings limit that changes each year. If you earn more than this limit and you have not yet reached your full retirement age, your benefit is reduced. The reduction is $1 in benefits for every $2 you earn above the limit. For example, if the limit is $23,400 and you earn $25,400, you are $2,000 over the limit, so your benefit is reduced by $1,000 that year.
In the year you reach your full retirement age, a different rule applies. Social Security only counts earnings before the month you reach full retirement age. The reduction is $1 in benefits for every $3 you earn above a higher limit. Once you reach full retirement age, even if it is mid-year, the earnings limit stops explore entirely for that month forward.
Social Security uses your tax return to verify your earnings. If you are self-employed, you report net income (income minus business expenses) on Schedule C of your tax return. Social Security will compare what you report to the IRS with what you told them when you claimed benefits.
How to report your earnings to Social Security
You do not have to report your earnings to Social Security every month. Instead, Social Security uses your federal tax return filed with the IRS to verify what you earned. When you file your taxes the following year, that information flows to Social Security, and they adjust your benefit if needed.
If you expect to earn a large amount in the year you claim, you can contact Social Security before you claim to ask about the earnings limit. They can estimate how much your benefit will be reduced. You can reach Social Security by phone at 1-800-772-1213 or by visiting your local Social Security office.
If you are self-employed, keep clear records of your income and business expenses. Your net self-employment income is what counts toward the earnings limit, not your gross revenue. When you file your tax return, the net income you report on Schedule C is the amount Social Security will use.
When the earnings limit stops explore
Once you reach your full retirement age, Social Security stops reducing your benefit based on earnings. Your full retirement age depends on your birth year: it ranges from age 66 to age 67 for people born between 1943 and 1960, and it is age 67 for anyone born in 1960 or later. You can find your full retirement age on your Social Security statement or by calling Social Security.
The earnings limit applies only in the years before you reach full retirement age. If you claim at 62 and your full retirement age is 67, the limit applies to ages 62, 63, 64, 65, and 66. In the year you turn 67, the limit applies only to earnings before the month you turn 67. From that month forward, you have no earnings limit.
This is one reason some people delay claiming Social Security. If you plan to keep working and earning a high income, waiting until your full retirement age means your benefit is not reduced, and you also receive a higher monthly benefit for waiting.
How earnings affect your benefit calculation long-term
The earnings limit only reduces your benefit in the year you earn above the limit. It does not permanently lower your monthly check. However, if you claim Social Security early and have low or no earnings in some years, those years may be included in the calculation of your average lifetime earnings, which could lower your benefit amount permanently.
Social Security calculates your benefit based on your 35 highest-earning years. If you claim at 62 and then work for several more years, those new earnings might replace lower-earning years in your record, which could increase your benefit. You can contact Social Security to ask whether working more years would increase your benefit.
If you are still working and have not claimed Social Security yet, you do not need to worry about the earnings limit. The limit only applies once you have claimed benefits and are receiving monthly payments.
What does not count as earnings
Social Security does not count many types of income toward the earnings limit. Withdrawals from retirement accounts like 401(k)s and IRAs do not count. Interest and dividends from investments do not count. Rental income does not count. Pensions from a previous job do not count. Social Security itself does not count. Veterans benefits, disability benefits, and other government payments do not count.
The only income that counts is money you earn by working — wages from an employer or net income from self-employment. This is an important distinction because many people in their 60s have multiple income sources, and only the work income affects the earnings limit.
Frequently Asked Questions
If I earn too much and my benefit is reduced, do I get that money back later?
No, the reduction is permanent for that year. However, when you reach your full retirement age, Social Security recalculates your benefit to account for the months you did not receive a payment. This means you will receive a higher monthly benefit going forward, but you do not receive a lump sum for the months you were reduced.
Does my spouse's earnings affect my Social Security benefit?
No. Your spouse's earnings do not count toward your earnings limit. Each person who receives Social Security has their own earnings limit based on their own income. However, if your spouse has not reached full retirement age and claims a spousal benefit, their earnings could reduce their own spousal benefit.
What if I am self-employed and my income varies year to year?
Social Security uses your net self-employment income reported on your tax return. If you have a very high-earning year followed by a lower-earning year, only the year you claim matters for the earnings limit. Keep good records of your business income and expenses so your tax return accurately reflects what you earned.
Can I work part-time and still collect Social Security before my full retirement age?
Yes, as long as your total earnings stay below the annual limit. If you earn above the limit, your benefit is reduced by $1 for every $2 over. Many people work part-time while collecting Social Security early, but you need to track your earnings to know whether you will hit the limit.
Do I need to tell Social Security when I start working after I claim benefits?
You do not need to report it when ready, but Social Security will find out when you file your tax return. If you think you will earn above the limit, you can call Social Security ahead of time to report your expected earnings and ask about the reduction. This helps you plan your budget.