If you are receiving Social Security benefits in 2025 and are below your full retirement age (FRA), your earnings are limited before your benefits are deducted due to the annual earnings test. The annual maximum for people covered by FRA is $23,400 and $1 will be deducted from your benefits for every dollar that exceeds this limit.
For earnings before your birthday month, a higher limit of $62,160 applies if you reach your FRA in 2025. For every USD 3 earned over the limit, USD 1 in benefits will be withheld and earnings and benefit withholding are unlimited after you reach your FRA.
Social Security Earnings Test Tightens in 2025
When it comes to the complexities of Social Security, time is important and 1 main reasons experts suggest delaying the filing of a Social Security claim until one is at least fully retired: The earnings test for Social Security payments, which affects early applicants who are still employed, is waived for you.
The second test can help early retirees who quit their jobs in the middle of the year avoid the trap as there are 2 earnings tests: an annual test and a monthly test. The government has identified those who may lose benefits, at least temporarily, as Social Security Earnings Test Tightens in 2025. Due to these changes, millions of working retirees may see a reduction in their benefits, depending on their age and earning.
What is the Social Security earnings test?
Almost one out of three Americans who receive Social Security has taken an early retirement. For many, it’s a need for money. Using the benefits to keep afloat has been required due to a medical condition or layoff but not every American who takes an early retirement and receives Social Security has given up their job. Many are therefore subject to a Social Security earnings test, which determines how much they will receive each month.
If you apply for Social Security early, you can earn up to the earnings test before a part of your payment is withheld and after they are 62, they can start receiving Social Security benefits. However, benefits reduce until the beneficiary reaches full retirement age (FRA), currently set at 67 for anyone born in 1960 or later. These payments may be reduced further if a beneficiary keeps working and makes enough money to exceed a threshold set by SSA.
What are the 2025 earnings-test limits?
In 2025, Social Security’s earnings-test limit will increase. Currently, you earn up to $22,320 without having your Social Security income deducted and that threshold is increasing to $23,400 in 2025. Benefits will thereafter be withheld at a rate of $1 for every $2 of earnings.Â
For those who will be eligible for full retirement in 2025 but are not yet there at the beginning of the year, there is an alternative earnings-test threshold. The 2024 limit was $59,520; now it is $62,160. After that, $1 in Social Security payments will be deducted for every $3 in earnings.
Do you lose benefits forever?
It’s a common misunderstanding that the benefits lost due to earning test are irreversible but it is not true. Once you qualify for FRA, the SSA will recalculate your benefit to reflect any months in which you were not eligible for benefits or got reduced benefits because you exceeded the earnings cap.
When you reach FRA, for instance, the SSA will increase your monthly benefit as if you were to delay claiming for benefits during that period, even if you claim Social Security at age 62 and miss a few months of income as a result.
What happens to those withheld benefits?
Upon exceeding the earnings test limit for your age, you will see that your Social Security payments will not be further reduced. Instead, you won’t receive all of those benefits until you are old enough to retire. Your benefits will then begin to rise each month.Â
At full retirement age, however, you will not receive a single lump sum payment of your Social Security income that was withheld because you exceeded the earnings test limit. Instead, your monthly payments will go up to make up for the money that was taken out.
All things considered, this year you could have missed a change that would have increased Social Security’s earnings test limits. You must be aware of it, if you are currently receiving Social Security and are considering returning to work or if you are already working part-time. It’s also a good idea to know what the earnings test limits are if you are not yet retired but are close to it. This is because you could need to work and receive Social Security before you reach full retirement age.
The bottom line
It’s well known that if you wait as long as possible to start receiving Social Security benefits (at least until you are 70 years old), your monthly check will be larger. But not everyone who is getting close to retirement knows that working over their full retirement age might reduce their benefits.Â
It is vital to stay updated with the Social Security earnings test rules if you are a working retiree or about to be one. Due to a tighter earnings test in 2025, many working retirees may see their retirement benefits withheld.
If delaying your benefit claims makes more sense in the long run, you can consult a financial counselor, calculate your projected earnings, and make that decision. If your earnings fall below the threshold, you may also be eligible to get your benefits early while you are still employed.Â
Most significantly, being aware of the rules regarding working while in retirement will assist you in making the best personal choice and preventing annoying benefit withholding that might adversely impact your financial situation.
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