Can You Make Money While on Social Security?

It is possible to earn income while receiving Social Security benefits, though your earnings might affect the amount of benefits you receive and how they are taxed. Understanding these interactions is important for individuals planning their retirement income. This article will explain the rules governing how working affects your benefits, the process for reporting your earnings, the potential tax implications, and how your benefits may be recalculated over time.

How Working Affects Your Social Security Benefits

The impact of working on your Social Security benefits largely depends on whether you have reached your full retirement age (FRA). Your full retirement age is determined by your birth year, generally ranging from 66 to 67 years old for most individuals currently claiming benefits. Before reaching this age, there are specific annual earning limits that can lead to a temporary reduction in your Social Security payments.

For those who are below their full retirement age for the entire year, the Social Security Administration (SSA) sets an annual earnings limit. If your earnings exceed this limit, your benefits will be reduced by $1 for every $2 you earn over the threshold. For example, if the annual limit is $22,320 in a given year and you earn $24,320, you have exceeded the limit by $2,000. This means your Social Security benefits would be reduced by $1,000 ($2,000 / 2).

A different earnings limit applies in the year you reach your full retirement age. For the months leading up to your birth month, your benefits are reduced by $1 for every $3 you earn above a higher, separate annual limit. In 2024, this limit is $59,520. Once you reach your full retirement age, the earnings limits no longer apply, and your Social Security benefits will not be reduced regardless of how much you earn.

The earnings that count towards these limits include wages from employment and net earnings from self-employment. Income sources such as pensions, annuities, investment income, interest, or capital gains do not count towards the Social Security earnings limits. Only income derived from active work is considered in these calculations.

Reporting Your Earnings to Social Security

Accurately reporting your earnings to the Social Security Administration (SSA) is an important part of managing your benefits while working. Prompt reporting helps ensure that you receive the correct benefit amount and can prevent overpayments, which would need to be repaid. The SSA primarily relies on wage information reported by employers and self-employment income from tax returns.

If your earnings change significantly during the year, or if you start or stop working, you should inform the SSA directly. This allows them to adjust your benefits more promptly than waiting for annual tax filings. You can report changes in your earnings online through your personal my Social Security account, by calling their national toll-free number, or by visiting a local Social Security office. You may also report changes by mail.

Keeping detailed records of your earnings, such as pay stubs, W-2 forms, and Schedule SE (Form 1040) for self-employment, can help you track your income against the earnings limits and verify any adjustments made to your benefits.

Taxation of Social Security Benefits While Working

Earning income while receiving Social Security benefits can also impact the federal taxation of those benefits. The amount of your benefits subject to federal income tax depends on your “combined income,” which is calculated as your adjusted gross income (AGI), plus any nontaxable interest, plus one-half of your Social Security benefits. This combined income figure determines which portion of your benefits becomes taxable.

For individuals filing as single, head of household, or qualifying widow(er), if your combined income is between $25,000 and $34,000, up to 50% of your Social Security benefits may be subject to federal income tax. If your combined income exceeds $34,000, up to 85% of your Social Security benefits may be taxable.

For those filing a joint return, the thresholds are higher. If your combined income is between $32,000 and $44,000, up to 50% of your benefits may be taxable. If your combined income as joint filers exceeds $44,000, up to 85% of your Social Security benefits may be taxable.

This taxation applies to the Social Security benefits themselves, not your earned income, but your earned income contributes to the combined income calculation that determines taxability. You can choose to have federal income tax withheld from your Social Security benefits, or you may need to make estimated tax payments throughout the year to cover any tax liability.

Recalculating Benefits After Reaching Full Retirement Age

Any Social Security benefits that were withheld due to exceeding the earnings limits before you reached your full retirement age are not permanently lost. Once you attain your full retirement age, the Social Security Administration automatically recalculates your benefit amount. This recalculation gives you credit for the months in which your benefits were reduced or withheld because of your earnings.

The SSA performs this adjustment by increasing your monthly benefit amount moving forward, effectively restoring the benefits that were initially withheld. This automatic process ensures that you eventually receive all the benefits you are entitled to, spread out over your remaining benefit payments.

If you continue to work after you start receiving benefits, even after reaching your full retirement age, your ongoing earnings can potentially lead to a higher future benefit amount. This occurs if your current year’s earnings are higher than one of the 35 highest earning years used in your original benefit calculation. The SSA periodically reviews your earnings record and will automatically increase your benefit if new, higher earnings improve your overall average indexed monthly earnings.