Does Social Security Go by Net or Gross Income?
The distinction between net and gross income for Social Security is nuanced. Learn how your earnings are assessed in different financial contexts.
The question of whether Social Security uses net or gross income is complex, as the answer depends on the context. The Social Security Administration (SSA) and the Internal Revenue Service (IRS) have distinct rules for how they consider your income. The income figure used changes when calculating your initial benefit, determining earnings limits for early retirement, and taxing your benefits.
Income for Calculating Your Benefit Amount
When the Social Security Administration determines your retirement or disability benefit, it uses your historical gross earnings. The SSA maintains a record of your income subject to Social Security taxes, including wages and gross earnings from self-employment. Your benefit calculation is based on your 35 highest-earning years, adjusted for inflation.
The SSA does not consider your net, or take-home, pay for this calculation. Deductions from your paycheck for things like income taxes, health insurance, or 401(k) contributions do not reduce the earnings amount used to compute your benefit.
There is an annual cap on the earnings subject to Social Security tax, so any income above that limit is not factored into your earnings record for that year. For 2025, this maximum is $176,100. This system ensures that individuals with higher lifetime gross earnings, up to the annual maximum, receive a larger monthly benefit.
The Annual Earnings Test for Early Retirees
If you claim retirement benefits before your full retirement age and continue to work, the SSA applies an annual earnings test. If your earnings exceed a set limit, the SSA temporarily withholds a portion of your benefits. For this test, the SSA counts your gross wages from an employer.
A different rule applies to self-employed individuals. For the earnings test, the SSA considers your net earnings from self-employment, which is your gross income from your business minus allowable business expenses.
In 2025, the earnings limit for those under full retirement age is $23,400, and the SSA withholds $1 from your benefits for every $2 you earn over this limit. A higher limit of $62,160 applies in the year you reach full retirement age. For that year, $1 in benefits is withheld for every $3 earned above the limit, counting only earnings before the month you reach full retirement age.
Once you reach your full retirement age, the earnings test no longer applies, and your benefits will not be reduced regardless of your earnings. Withheld benefits are not permanently lost. The SSA recalculates your benefit amount at your full retirement age to credit you for the months benefits were withheld.
Income for Taxing Your Benefits
Whether your Social Security benefits are taxable is determined by the IRS using a formula based on your “combined income,” also called provisional income. This measure is used only to determine the taxability of your benefits.
To calculate your combined income, you add your adjusted gross income (AGI), any nontaxable interest, and 50% of your total Social Security benefits for the year. Your AGI is your gross income minus certain deductions. This combined income figure is then compared against thresholds to determine if your benefits are subject to federal income tax.
The taxability thresholds depend on your filing status. For single filers, up to 50% of benefits may be taxable with a combined income between $25,000 and $34,000, and up to 85% for income over $34,000. For those married filing jointly, the 50% taxable range is for incomes between $32,000 and $44,000, and up to 85% is taxable for incomes above $44,000.
The SSA provides the total benefits you received on Form SSA-1099, the Social Security Benefit Statement. You will use this form to determine and report the taxable portion of your benefits on your annual tax return.