How Does The Social Security Earnings Limit Work?

Working while receiving Social Security may trigger the earnings limit.

Man reading about the Social Security earnings limit.
If you collect benefits early, and continue working, the earnings limit will apply to you. Jim McGuire/Photolibrary/Getty Images

If you take Social Security benefits before your full retirement age (which is determined by your day and year of birth) and you earn income in excess of the annual earnings limit, your Social Security benefit will be reduced up until the point that you reach full retirement age.

Investment income does not count toward the annual earnings limit; the only income that counts is earned income - the income you earn by working, either for someone, or as a self-employed person.

How Much Can I Earn?

In 2017, the annual earnings limit is $16,920. That means in 2017 you can earn up to $16,920 and continue to receive all your Social Security benefits. This is an increase from the limit of $15,720 which applied in 2015 and 2016.  

If you earn over $16,920, there are a set of rules that determine how much your Social Security benefits will be reduced. There are three different earnings limit rules that apply, depending on whether you earn the income before, during, or after the year your reach full retirement age. Each option is covered below.

1. Income Earned Before the Year You Reach Full Retirement Age

If you are collecting Social Security benefits and earn more than the annual earnings limit, Social Security will take back $1 of Social Security for every $2 over the limit. Ouch! This is a serious reduction.

This reduction applies to any year before you reach full retirement age, but it only applies to income earned after you start collecting Social Security benefits.

So if you work a partial year, the income you earn before the month you start collecting Social Security benefits does not count toward the annual earnings limit.

Note: sometimes Social Security website pages use the term "normal retirement age". It means the same thing as full retirement age (FRA).

2. Income Earned During the Year You Reach FRA

During the year you reach FRA, and up until the month you reach FRA, Social Security will deduct $1 for every $3 you earn that is over the annual earnings limit, but a different earnings limit applies the year you reach FRA.

In 2017, you can earn up to $44,880, a $3,000 increase from 2016, during the year you reach FRA. During this year Social Security only counts earnings that you receive before the month you reach FRA.

Example 1: Let's assume you were born in 1951, which means your FRA is age 66. You turn 66 in June 2017 and begin your Social Security benefits at that time, but you continue to work until the end of the year, and earn $44,000 for the year. Your benefits will not be reduced because you earned less than the $44,880 for the year.   

The Social Security website provides additional examples of how this deduction works. You can also use the earnings test calculator, and plug in your date of birth and expected earnings to see if you think a reduction will apply to you.

 

3. Income Earned After You Reach FRA

Once you reach FRA, you are no longer subject to the annual earnings limit; you can earn as much as you like without incurring a reduction in your Social Security benefits! Your benefits may, however, still be subject to income taxes. 

Best Way to Avoid the Earnings Limit

The best way to avoid the earnings limit is to wait until you reach FRA to begin your benefits. Understandably, some people have no choice and must start benefits because they are laid off and they have no other income or assets. If this happens to you, but later your situation changes and you go back to work, you can withdraw your application for Social Security within 12 months of starting benefits.

Other people, however, do have a choice; perhaps they could use some of their savings or retirement money to tide them over until they reach FRA. This may be a better option than starting Social Security early.

What Counts As Earnings?

Unemployment income does not count as earnings toward the earnings test above. If you are earning wages, income counts when it is earned, not when it is paid. The IRS provides additional details on what is and is not considered to be earned income.

Earnings Limit Is Indexed to Inflation

The earnings limit will adjust upward each year depending on the formal measure of inflation which is the Consumer Price Index. In the table below you see past year's limits. In the years where it did not change inflation was quite low or negative. 

 
YearLimit ($)
201716,920
201615,720
201515,720
201415,480
201315,120
201214,640
201114,160
201014,160
200913,560

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