When you retire and begin to receive Social Security benefits, you may have questions about whether or not it is possible to still work and earn income. The answer is yes, but there are a few rules and regulations that need to be taken into consideration. For a general overview of Social Security retirement income benefits, click here to read Provident Financial Planning’s previous article. This blog will discuss what happens if you work while receiving Social Security, how much you can earn while receiving Social Security, temporarily withheld benefits, and the taxable amount of Social Security benefits based on income.

How Much Can I Earn While Receiving Social Security?

The Social Security Administration (SSA) has established an earnings limit that applies to any individual who is collecting Social Security benefits before his or her full retirement age (FRA). In 2023, this limit is $21,240 per year. Any earned income over $21,240 will result in a dollar-for-dollar reduction in your benefits from the SSA until the annual limit has been reached. If your earned income exceeds the annual limit for three consecutive years, there will be no further payments until you reach your full retirement age or stop working. There is also a special rule for those who reach their full retirement age between January 1st and June 30th of 2021; in this case, the earnings limit increases to $50,520 per year with a dollar-for-dollar reduction starting at $48,600. The same holds true if you reach your full retirement age between January 1st and June 30th of 2022; the earnings limit increases to $52,000 per year with a dollar-for-dollar reduction starting at $50,520.

Temporarily Withheld Benefits

Your Social Security benefits may be temporarily withheld if your earned income exceeds certain limits set by law. In 2023, this limit is set at $1 for every two dollars earned over the annual earnings limit discussed above ($21,240). You may continue to receive some benefits as long as your total combined wages plus net self-employment do not exceed the annual exempt amount ($21,240 in 2023). However, any additional wages beyond this amount could result in all of your benefits being withheld until you reach your full retirement age or stop working entirely.

Making Up for Withholding and Resetting Benefits Once You Reach Your FRA

Once you reach your FRA and have exceeded the earnings limit established by the SSA in any given calendar year, the SSA will begin making up for the withholding by giving you credit for those months when you lost benefits due to exceeding the threshold limit. This means that any money withheld from your benefits during those months will now be paid back (plus interest) once you reach your FRA. Social Security will start paying out a higher monthly payment starting with the following January's payment cycle based on what would have been paid out had no withholding taken place during earlier years (due to earnings surpassing the annual limits prior to reaching your FRA).

Earnings Limit End Date

The annual earnings limit only applies until you reach your FRA. After that point, there is no longer an earnings limit or withholding of benefits due to employment income. If you claimed your Social Security income benefits before your FRA, but you now have sufficient income from other sources, you can request a suspension of benefits from the SSA once you reach your FRA. You will earn delayed retirement credits each month the benefit is suspended, effectively increasing your SSA benefits 8% per year resulting in higher future benefit payments. If suspended, the income benefit will automatically begin at age 70; however, you can start receiving your benefits before age 70 by contacting the SSA.

Taxable Amount of Social Security Benefits Based on Income

Your Social Security benefits may be subject to federal taxation depending on your filing status and other sources of income such as wages or investment interest/dividends. Up to 50% of your benefits may be taxable if your total combined taxable income exceeds certain thresholds ($25,000 for single filers; $32,000 for joint filers). If your taxable income is more than $34,000 (for single filers) or $44,000 (for joint filers), 85% of the income received from Social Security benefits is subject to federal income tax. Each January, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or have federal taxes withheld from your benefits.

For more information regarding federal taxation, please contact Provident Financial Planning to speak with our in-house CPA/JD tax team for further advice related to tax planning strategies that are specific to you and your individual situation.

Conclusion

Working while receiving Social Security has many advantages, but it is important to understand how it affects your total benefits and federal taxes. You should be mindful of potential consequences, such as: unintentionally reducing your benefits payments due to exceeding certain earning limits, or triggering federal taxes on part or all of your benefits payments. It's also important for those who have reached their full retirement age prior to 2023 to be aware of recent changes concerning increased earnings limits, so they can maximize their earning potential without reducing their benefit amounts from the SSA.

At Provident Financial Planning, our holistic planning process conducted by our CFP®, JD, CPA team allows us to understand all aspects of your financial situation to advise you when to claim or delay Social Security retirement income benefits. Contact Provident Financial Planning today to discuss our advisory process, and we will help you make informed, strategic decisions to optimize your financial security.

Schedule an appointment.

Blessings,

Paul S. Michel, CFP®

paul@providentfp.com

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