What can I earn while on social security?

Once you retire, you may decide to continue working to supplement your retirement income. However, if you are already receiving the regular Social Security benefits, you may want to know how the additional earnings will affect your Social Security benefits before or after the full retirement age.

If you opt to work and collect Social Security benefits before reaching the full retirement age, your benefits may be reduced if the total taxable income exceeds $19,560 in 2022. If your earnings from employment or self-employment exceed this amount, $1 will be withheld from your Social Security benefits for every $2 in excess earnings.

Can you work and receive Social Security benefits?

You can work and get regular benefits from Social Security. However, if you are below the full retirement age, the amount of benefits you receive may be reduced up to a certain level. The full retirement age is 66 for people born between 1943 to 1954, and it gradually rises to 67 for people born in 1960 or later.

For 2022, the SSA earning limit is $19,560 per year for individuals below the full retirement age. If your income exceeds this earnings limit, Social Security will deduct $1 from your benefits for every $2 in excess earnings. For example, if you earned $29,560 during the year, it means your earnings exceeded the Social Security earnings limit by $10,000. Therefore, your benefits will be reduced by $5,000, which represents $1 for every $2 earned above the limit. 

If you will reach the full retirement age in 2022, the earnings limit for the period before the full retirement age is $51,960, or $4,330 per month. If your earnings are more than the annual earnings limit, Social Security will deduct $1 for every $3 in excess earnings. For example, if you reach the full retirement age in November, Social Security will only reduce your benefits if you have excess earnings between January and October.

The Social Security earnings limit applies regardless of whether you are taking benefits based on your work history, spouse’s work history, or survivor benefits.

What happens to benefits withheld by Social Security?

If you earn and collect Social Security benefits before the full retirement age, you will receive reduced benefits. However, this reduction is not permanent, and you will receive credit for the reduced benefits when you reach the full retirement age.

For example, if you turn 62 in 2022, you qualify to collect Social Security benefits. Assume that you are eligible to receive $1,200 in monthly benefits, and you earn $29,560 from a part-time job. Since your earnings exceed the annual earnings limit, you will lose $1 in benefits for every $2 in excess earnings. In this case, you will lose $5,000 [$29,950-$19560]/2], which is equivalent to 4.1 months of benefits lost, which are rounded off to 5 months.

If you continue losing 5 months of benefits until you reach the full retirement age i.e. 67, it means Social Security will withhold about 25 months of benefits. Once you reach 67, Social Security will calculate your benefits as if you started taking benefits 35 months earlier instead of 60 months. This means you will end up getting bigger Social Security payouts to reflect the monthly checks withheld by Social Security.

What type of income counts?

If you are employed, only the wages earned will count towards your Social Security earnings limit. It excludes investment earnings, annuities, pensions, and capital gains. However, wages only count when they are earned, not in the year when they are paid. For example, if you earned $5,000 in one year, but you did not receive the payment until the following year, the payment should only be counted as earnings when it was earned. If you are self-employed, only the net earnings are counted. Unlike employment income, self-employment income is counted when you receive it, not in the period when you earn it.

Are social security benefits taxable when working?

If you work and collect Social Security benefits at the same time, part of your Social Security income becomes taxable. Also, earnings from employment or business, interest from investments, and withdrawals from 401(k) may make part of your Social Security benefits taxable.

If your taxable income is higher than $25,000 for individuals and $32,000 for a married couple, you could pay income taxes on up to 50% of your Social Security payments. On the other hand, if the total taxable income is higher than $34,000 for individuals or $44,000 for couples, you will pay taxes on up to 85% of your Social Security benefits. However, if your total taxable income falls below these limits, you won’t pay income taxes on your Social Security benefits.

Can you work while receiving disability benefits?

To qualify for Social Security disability benefits, the SSA requires that you must no longer be able to perform a substantial gainful activity. Doing substantial gainful activity means you are working and earning at least $1,350 per month in 2022, or $2,260 per month if you are blind.

The SSA does not allow phaseout for disability benefits. If your earnings exceed the Social Security limit by $1, you will lose all the benefits you receive from Social Security. However, if you earn less than the Social Security limit, you will keep the full disability benefits.

Social Security has some exceptions to the disability benefits limit. It allows a nine-month trial period when workers can earn more than the substantial gainful activity limit without losing disability benefits. However, you must report the earnings and have a disabling condition. The trial period encourages workers to test their ability to work.