How Much Can You Make on Social Security Without a Penalty?

Social Security benefits provide a foundational income for millions of Americans in retirement. Many individuals choose to continue working even after beginning to receive these benefits, often to supplement their income. This combination of working and receiving Social Security benefits is permissible, but it introduces specific earnings limitations. Understanding these limits is important for beneficiaries to manage finances effectively and avoid unexpected reductions in their Social Security payments.

Earnings Limits Before Full Retirement Age

Individuals receiving Social Security benefits who have not yet reached their Full Retirement Age (FRA) are subject to annual earnings limits. For 2024, if you are under your full retirement age for the entire year, you can earn up to $22,320 before your benefits are affected. For every $2 earned above this threshold, $1 will be withheld from your Social Security benefits. This limit is adjusted annually, with the 2025 limit set at $23,400.

A higher earnings limit applies in the calendar year you reach your full retirement age. In 2024, this limit is $59,520. For earnings above this amount, $1 in benefits will be withheld for every $3 earned, but only for the months before you reach your full retirement age. Earnings from the month you attain your full retirement age and beyond do not count towards this annual limit.

How Earnings Affect Your Benefits

When your earnings exceed the limits before reaching your full retirement age, the Social Security Administration (SSA) temporarily withholds a portion of your benefits. This is a reduction in current payments, not a permanent loss. For those under full retirement age for the entire year, the reduction rate is $1 for every $2 earned above the annual limit. For example, if you earn $1,000 over the limit, your benefits would be reduced by $500.

In the year you reach your full retirement age, $1 in benefits is withheld for every $3 earned above the higher limit, specifically for earnings accumulated up to the month you reach your full retirement age. These withheld amounts are not forfeited. Once you reach your full retirement age, the SSA recalculates your benefit amount to account for previously withheld benefits, which typically results in a higher monthly payment going forward. This recalculation adjusts your benefit to reflect that you received fewer payments earlier due to your earnings.

Income Included in the Earnings Test

The Social Security Administration’s earnings test considers “earned income.” This encompasses wages from employment, including salaries, bonuses, commissions, and vacation pay. For self-employed individuals, “earned income” refers to their net earnings from self-employment, generally calculated as gross income minus business deductions, as reported on IRS Schedule C.

Many other income types do not impact your Social Security benefits. These non-countable sources include pensions, annuities, distributions from retirement accounts such as IRAs or 401(k)s, investment income (dividends, interest, capital gains), government retirement benefits, veterans’ benefits, and passive income from rental properties (unless material participation in a trade or business).

Reaching Full Retirement Age and Beyond

Once a Social Security beneficiary reaches their Full Retirement Age (FRA), earnings limits no longer apply. Individuals can earn any amount from working without their Social Security benefits being reduced.

Any benefits previously withheld due to exceeding earnings limits before FRA are not permanently lost. The Social Security Administration recalculates your benefit amount at your full retirement age. This adjustment credits you for the months your benefits were reduced or withheld, resulting in an increased monthly benefit amount for the remainder of your life. This mechanism ensures that the temporary reduction in benefits due to earnings before FRA is effectively returned to the beneficiary over their remaining lifetime.