Collecting SS and Working: How It Affects Your Benefits and Taxes

Social Security benefits provide financial support to retirees, but working while collecting them can impact how much you receive. Earnings may temporarily reduce benefits and affect taxes. Understanding these factors helps in making informed decisions about when to claim benefits and whether to keep working.

Earnings Threshold Rules

The Social Security Administration (SSA) sets annual earnings limits to determine whether benefits will be temporarily reduced for those who claim before full retirement age (FRA). In 2024, the limit for individuals below FRA is $22,320. Earnings beyond this amount reduce benefits by $1 for every $2 earned over the threshold. This reduction applies only to wages and self-employment income—investment earnings, pensions, and other non-wage sources are excluded.

A higher limit applies in the year an individual reaches FRA. In 2024, this threshold is $59,520, with benefits reduced by $1 for every $3 earned above the limit, but only for months before reaching FRA. Once FRA is reached, the earnings limit no longer applies, and benefits are recalculated to restore withheld amounts.

Adjustments to Benefits

Reduced benefits due to earned income aren’t permanently lost. Upon reaching FRA, the SSA recalculates benefits to account for months when payments were withheld, increasing future monthly payments.

This adjustment reduces the early retirement penalty applied when benefits were first claimed. For example, if someone claimed Social Security at 62 instead of waiting until 67, their monthly benefit would be reduced by about 30%. However, if earnings caused benefits to be withheld for two years before FRA, the SSA adjusts the reduction as if benefits were claimed at 64 instead of 62, resulting in a smaller permanent reduction.

Continued work can also increase benefits if current earnings replace lower-earning years in the calculation. Social Security is based on a worker’s highest 35 years of inflation-adjusted earnings. If new wages replace lower-earning years, benefits are recalculated annually, leading to higher payments.

Tax Considerations

Social Security benefits may be taxable depending on total income, including wages, pensions, and retirement account withdrawals. The IRS uses “combined income,” which includes adjusted gross income (AGI), nontaxable interest, and half of Social Security benefits, to determine tax liability.

In 2024, individuals with combined income between $25,000 and $34,000 may have up to 50% of benefits taxed, while those exceeding $34,000 could see up to 85% taxed. For married couples filing jointly, the thresholds are $32,000 and $44,000. These limits are not indexed for inflation, meaning more retirees are affected over time.

State taxation varies. While most states do not tax Social Security, 11 states, including Colorado, Minnesota, and Vermont, impose some level of taxation. Each state has its own rules, with some offering income-based exemptions or deductions. Checking state-specific tax laws is essential for planning.

Delayed Retirement Credits

Delaying Social Security beyond FRA increases monthly payments. For each month benefits are postponed, payments grow by two-thirds of 1%, totaling an 8% annual increase. This accrual continues until age 70, after which no further credits apply.

The financial advantage can be significant. A person with an FRA of 67 who would receive $2,000 per month at that age can instead receive $2,480 per month by waiting until 70, a 24% increase. This higher benefit persists for life and is further boosted by cost-of-living adjustments (COLAs). For married couples, delaying benefits for the higher-earning spouse can maximize survivor benefits, ensuring the surviving spouse receives the highest possible amount.

Interaction With Other Income-Based Programs

Working while receiving Social Security can affect eligibility for income-based assistance programs such as Supplemental Security Income (SSI), Medicaid, and the Supplemental Nutrition Assistance Program (SNAP). These programs have strict income limits, and additional earnings may push total income above eligibility thresholds.

SSI, which provides financial assistance to low-income elderly or disabled individuals, reduces payments by $1 for every $2 earned above a small exemption. In 2024, the federal benefit rate for SSI is $943 per month for individuals, with earned income above $85 per month reducing benefits.

Medicaid eligibility is also income-sensitive, with each state setting its own limits based on the Federal Poverty Level (FPL). If wages increase total income beyond these limits, individuals may lose Medicaid coverage and need to seek alternative health insurance options, such as Medicare Savings Programs or Affordable Care Act marketplace plans.

SNAP, commonly known as food stamps, calculates benefits based on net income after allowable deductions. Additional earnings can reduce or eliminate eligibility, particularly for retirees previously qualifying based on Social Security alone. Housing assistance programs, such as Section 8, also consider employment income when determining rent subsidies. Retirees relying on these programs should assess how continued work may impact their overall financial situation, as losing benefits could offset the advantages of earning additional income.