Do 401k Contributions Count Towards Social Security Earnings Limit?
Understand the distinction between taxable income and the gross wages Social Security uses for its earnings test when you contribute to a 401(k).
Many individuals approaching retirement age plan to continue working, raising questions about how income interacts with Social Security benefits. A frequent point of confusion is how 401(k) contributions affect the calculation of earnings, which could impact Social Security payments. This interaction is governed by specific rules for anyone planning to draw benefits while still employed.
The Social Security Annual Earnings Limit
The Social Security Administration (SSA) imposes an annual earnings limit on individuals who receive retirement benefits before reaching their full retirement age (FRA). Once you reach FRA, the limit disappears, and you can earn any amount without your benefits being reduced. The limit is adjusted annually and has two different tiers depending on how close you are to your FRA.
For those who are under their full retirement age for the entire year, the 2025 earnings limit is $23,400. If your earnings from work exceed this amount, the SSA will temporarily withhold $1 in benefits for every $2 you earn above the limit. This reduction is a withholding, not a permanent loss, as benefits are recalculated at your FRA to account for any amounts that were withheld.
A higher earnings limit applies during the calendar year in which you will reach your FRA. For 2025, this limit is $62,160 and it only considers earnings in the months prior to attaining FRA. In this scenario, the benefit reduction is less severe, with $1 withheld for every $3 earned above the threshold.
Defining Earnings for the Social Security Test
To understand how the earnings limit is applied, it is necessary to know what the Social Security Administration defines as “earnings.” The SSA has a specific definition for this test, which is not the same as your taxable income for federal tax purposes. The primary components that count toward the limit are your gross wages from a job and your net earnings if you are self-employed.
The calculation is based on the total amount you earn from working, not the net amount you receive in your paycheck. For self-employed individuals, the SSA looks at the net profit from the business—gross revenue minus business expenses.
Conversely, many other types of income are explicitly excluded from the earnings test calculation. This uncounted income includes payments from pensions and other retirement accounts, interest income, and earnings from investments such as dividends or capital gains. Annuity payments and government benefits are also not considered earnings for this purpose.
How 401(k) Contributions Impact Countable Earnings
Employee contributions to a traditional 401(k) plan do not reduce the earnings counted by the SSA for its annual test, even though they lower your taxable income. The reason for this treatment is found by examining your annual Form W-2, Wage and Tax Statement.
Your W-2 reports income in several boxes. Box 1 shows your taxable income after pre-tax deductions like 401(k) contributions are subtracted. The SSA does not use the figure in Box 1, but instead uses the amount in Box 3, “Social Security wages.” This box shows your gross wages before any 401(k) deferrals are taken out, up to the 2025 Social Security wage base limit of $176,100.
For example, if you earn a gross salary of $70,000 and contribute $15,000 to your traditional 401(k), your taxable wages in Box 1 would be $55,000. Your Social Security wages in Box 3 would remain $70,000, and this is the figure the SSA compares against the annual earnings limit. This principle also applies to Roth 401(k) contributions, which do not reduce the amounts in either Box 1 or Box 3.
Any matching contributions or profit sharing your employer makes to your 401(k) are not considered part of your wages. These amounts do not appear in Box 3 of your W-2 and therefore have no impact on the earnings test calculation.