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. Here's how it works. Jim McGuire/Photolibrary/Getty Images

If you take Social Security benefits before your full retirement age I(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.

Investment income does not count toward the annual earnings limit; the only income that counts is earned income - the income you earn by working.

For 2016 and 2015, the annual earnings limit is $15,720.

That means you can earn up to $15,720 and your benefits will not be reduced. (If curious, view past year's earnings limits - the limit is indexed to inflation so over time it goes up). 

If you earn over $15,720 the amount of reduction you incur will depend on your age and how much you made. 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. I cover each scenario below.

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.

Income earned during the year you reach full retirement age

During the year you reach full retirement age, and up until the month you reach full retirement age, 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 full retirement age.

In 2016 and 2015, you can earn up to $41,880 during the year you reach full retirement age. During this year Social Security only counts earnings that you receive before the month you reach full retirement age.

Income earned after you reach full retirement age

Once you reach full retirement age, 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.

You benefits may however still be subject to income taxes. Read Taxes on Social Security to see if your benefits will be taxable.

Best way to avoid the earnings limit

The best way to avoid the earnings limit is to wait until you reach full retirement age 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 full retirement age. This may be a better option then 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. For additional details on what counts see the How Work Affects Your Benefits section of the Social Security website.

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 ($)
201615,720
201515,720
201415,480
201315,120
201214,640
201114,160
201014,160
200913,560
200812,960

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