What Happens If You Work and Collect Social Security?

Many individuals collect Social Security benefits while continuing to work. Understanding how continued earnings interact with these benefits is important for financial planning, as income can impact both the amount received and its taxability. Specific rules govern how working affects Social Security.

How Earnings Affect Your Benefits

The Social Security Administration (SSA) uses the Retirement Earnings Test (RET) to determine if benefits are reduced for those working before their Full Retirement Age (FRA). This test applies annual earnings limits; exceeding them can lead to a temporary benefit reduction. It is important to distinguish between rules for those entirely below their FRA and those in the calendar year they reach their FRA.

For individuals under their FRA for the entire year, the 2025 earnings limit is $23,400. If earnings exceed this, the SSA withholds $1 in benefits for every $2 earned above the limit. For example, earning $25,400 (which is $2,000 over the limit) would reduce annual benefits by $1,000.

A higher limit applies in the calendar year an individual reaches their FRA. For 2025, this limit is $62,160. The benefit reduction rate is $1 for every $3 earned over this limit, but only for earnings prior to the month of reaching FRA. For instance, if someone earns $65,160 before reaching FRA in August 2025 (which is $3,000 over the limit), their benefits would be reduced by $1,000.

Once an individual reaches their FRA, the Retirement Earnings Test no longer applies. There is no limit on how much can be earned while receiving Social Security benefits, allowing greater flexibility for continued work.

Income counting toward these limits includes wages from employment (such as bonuses, commissions, and vacation pay) and net earnings from self-employment. Income from pension payments, most annuity payments, IRA and retirement account distributions, dividends, interest income, and capital gains do not count toward the earnings limit.

Understanding Social Security Benefit Taxation

Beyond the earnings test, Social Security benefits can be subject to federal income tax, depending on total income. The IRS uses “combined income” to determine the taxable portion of benefits.

Combined income is your adjusted gross income (AGI) plus any nontaxable interest and one-half of your Social Security benefits. For example, if your AGI is $20,000, you have $2,000 in nontaxable interest, and you receive $18,000 in Social Security benefits, your combined income would be $31,000.

The amount of Social Security benefits subject to federal income tax depends on combined income and tax filing status.
For single filers:
Combined income between $25,000 and $34,000: up to 50% of benefits may be taxable.
Combined income exceeds $34,000: up to 85% of benefits may be taxable.
For married filing jointly:
Combined income between $32,000 and $44,000: up to 50% of benefits may be taxable.
Combined income exceeds $44,000: up to 85% of benefits may be taxable.

Working while collecting Social Security can increase your adjusted gross income, raising your combined income. This may make a larger portion of your Social Security benefits subject to federal income tax, even if your benefits are not reduced by the earnings test.

Managing Your Benefits and Future Adjustments

Accurately reporting earnings to the Social Security Administration (SSA) is important for individuals working while receiving benefits. This helps prevent overpayments or underpayments and ensures the SSA can correctly adjust benefits. Earnings should generally be reported monthly, and keeping records like pay stubs is advisable.

If benefits are withheld due to exceeding the earnings limit before reaching FRA, those funds are not permanently lost. The SSA recalculates the individual’s benefit amount at their FRA, giving credit for withheld months. This effectively increases the monthly benefit amount going forward, as if the individual had claimed benefits later.

Continuing to work means you contribute to Social Security through payroll taxes. The SSA periodically reviews earnings records and will increase your benefit amount if your recent earnings are higher than one of the 35 years used in your initial benefit calculation. This adjustment is retroactive to January of the year following the earnings.

Individuals who have reached their FRA can voluntarily suspend benefits. Suspending benefits allows them to earn delayed retirement credits (DRCs), which increase their future monthly benefit amount. Benefits grow by 0.66% for each month suspended, accumulating to an 8% increase per year until age 70. This can be a strategy to maximize future payments.