Does Selling Stock Affect Social Security Benefits?
Discover the nuanced financial effects of selling stock on your Social Security benefit taxation and Medicare costs.
Selling stock can raise questions about its impact on Social Security benefits. Generally, selling stock does not directly reduce the amount of monthly Social Security benefits received. However, the income generated from such sales can have indirect effects on other financial aspects related to retirement, including how much of your Social Security benefit might be subject to federal income tax and certain Medicare costs.
How Social Security Benefits are Calculated
Social Security benefits are determined by a worker’s lifetime earnings history. The Social Security Administration (SSA) calculates an individual’s Average Indexed Monthly Earnings (AIME) based on their 35 highest-earning years, adjusted for national wage growth. This process considers wages and net earnings from self-employment, reflecting a worker’s contributions to the system over their career.
The calculated AIME is then used to determine the Primary Insurance Amount (PIA), which represents the monthly benefit a worker receives if they claim benefits at their Full Retirement Age (FRA). The PIA calculation applies specific percentages to different portions of the AIME. An individual’s FRA depends on their birth year, ranging from age 66 to 67 for those born in 1943 or later. Claiming benefits before or after this age permanently adjusts the monthly benefit amount; for instance, starting benefits at age 62 results in a reduced payment, while delaying until age 70 can significantly increase it.
Income Types That Affect Social Security Benefits and the Earnings Limit
The Social Security Administration distinguishes between “earned income” and other forms of income when evaluating benefits. Earned income includes wages received from employment and net earnings from self-employment. These are the only types of income that count towards the Social Security Earnings Test.
The Earnings Test applies to individuals who claim Social Security benefits before reaching their Full Retirement Age and continue to work. If earned income exceeds an annual limit, a portion of their Social Security benefits will be temporarily withheld. For 2025, if you are under your FRA for the entire year, the earnings limit is $23,400, with $1 in benefits withheld for every $2 earned above this amount. In the year an individual reaches their FRA, a higher limit applies, which is $62,160 in 2025, and $1 in benefits is withheld for every $3 earned above this threshold until the month they reach FRA. Passive income, such as investment income, pensions, annuities, and capital gains from selling stock, is not considered earned income for this test and does not trigger benefit reductions.
How Stock Sales Are Treated for Social Security
Capital gains realized from selling stock are not categorized as “earned income” by the Social Security Administration. Therefore, these gains do not directly impact the calculation of your monthly Social Security benefit amount, nor do they count against the Social Security Earnings Test. This means selling investments will not cause your benefits to be reduced or withheld based on the earnings limits.
While stock sales do not affect the benefit amount or the earnings test, they contribute to your Adjusted Gross Income (AGI) for federal tax purposes. A higher AGI, which includes capital gains, can lead to a portion of your Social Security benefits becoming taxable at the federal level. The Internal Revenue Service (IRS) uses a “provisional income” calculation to determine this taxability.
Provisional income is calculated by adding your AGI, any tax-exempt interest, and half of your Social Security benefits. For single filers, if provisional income is between $25,000 and $34,000, up to 50% of Social Security benefits may be taxable. If it exceeds $34,000, up to 85% of benefits may be taxable. For those filing jointly, the thresholds are $32,000 to $44,000 for up to 50% taxation and over $44,000 for up to 85% taxation. These thresholds are not adjusted for inflation, which can cause more benefits to become taxable over time as incomes rise.
Other Financial Considerations from Stock Sales
Beyond the direct taxation of Social Security benefits, income from stock sales can influence other financial aspects, particularly Medicare premiums. A higher Modified Adjusted Gross Income (MAGI), which includes capital gains, can result in increased Medicare Part B and Part D premiums through the Income-Related Monthly Adjustment Amount (IRMAA). Medicare determines IRMAA by reviewing your MAGI from two years prior to the current year.
If your MAGI exceeds certain income thresholds, you will pay an additional surcharge on your standard Medicare premiums. For instance, in 2025, if an individual’s MAGI from 2023 was over $106,000 (or $212,000 for those filing jointly), they would pay higher premiums.