Working While Collecting Social Security

Many people assume that once they start collecting Social Security, they need to stop working entirely. That is not the case. Millions of Americans continue to earn income while receiving Social Security retirement benefits. However, the rules governing how your earnings interact with your benefits are nuanced, and misunderstanding them can lead to unwelcome surprises on your monthly statement.

Whether you are considering an early claim while still employed, planning a phased retirement, or simply want to supplement your income with part-time work, understanding the Social Security earnings test is essential. This article walks through how the rules work, what income counts, and how to think strategically about coordinating work and benefits.

The Social Security Earnings Test

The Social Security earnings test is a provision that temporarily reduces your retirement benefits if you claim before your full retirement age (FRA) and your earned income exceeds certain thresholds. FRA is 66 and 8 months for people born in 1958, 66 and 10 months for those born in 1959, and 67 for anyone born in 1960 or later.

It is important to emphasize the word temporarily. The earnings test is not a permanent penalty or a tax on your benefits. It is a deferral mechanism. Benefits that are withheld due to the earnings test are factored back into your monthly payment once you reach FRA. We will explore the recalculation in detail below.

The earnings test only applies to people who have not yet reached their full retirement age. If you are at or past FRA, you can earn as much as you want with absolutely no reduction in your Social Security benefits.

2025 Earnings Limits

The Social Security Administration adjusts the earnings limits annually based on changes in the national average wage index. For 2025, the thresholds are as follows:

Two important details about the higher limit in the year you reach FRA: First, only earnings in the months before you reach FRA count toward the limit. Second, the withholding rate drops from $1 per $2 to the more favorable $1 per $3. Starting in the month you actually reach FRA, there is no further reduction regardless of your earnings.

What Counts as "Earnings"?

Not all income triggers the earnings test. The SSA only counts earned income — specifically wages from employment and net earnings from self-employment. The following types of income do not count toward the earnings test:

• Investment income (dividends, interest, capital gains)
• Pension and annuity payments
• IRA and 401(k) distributions
• Rental income (in most cases)
• Government benefits
• Inheritance or gifts

This distinction is significant for retirement planning. If you have substantial investment income or pension payments, those income streams will not reduce your Social Security benefits even if you claim before FRA. The earnings test is exclusively concerned with wages and self-employment earnings.

For employees, the SSA generally counts your gross wages — the amount before taxes and deductions are taken out. For self-employed individuals, it is your net earnings from self-employment as reported on your tax return.

Detailed Example: Working at Age 63

Let us walk through a concrete scenario to illustrate how the earnings test works in practice.

Assumptions:

• Linda is 63 years old in 2025 and has a full retirement age of 67.
• She claimed Social Security early and receives a monthly benefit of $1,800 ($21,600 per year).
• She continues to work part-time and earns $40,000 in wages during 2025.

Step 1: Calculate excess earnings.

Linda's earnings of $40,000 exceed the under-FRA limit of $22,320 by $17,680.

Step 2: Determine withholding.

At a rate of $1 withheld for every $2 over the limit: $17,680 / 2 = $8,840 withheld from her Social Security benefits during the year.

Step 3: Impact on monthly benefits.

The SSA typically withholds benefits from the beginning of the year until the full withholding amount is satisfied. With a monthly benefit of $1,800, the SSA would withhold Linda's entire benefit for approximately 4.9 months — meaning she would receive no Social Security payments from January through roughly early June, after which her full monthly benefit would resume for the remainder of the year.

The Benefit Recalculation at FRA

Here is the part that many people overlook: the benefits withheld due to the earnings test are not simply forfeited. When Linda reaches her full retirement age of 67, the SSA will recalculate her benefit to give her credit for the months in which benefits were withheld.

Specifically, the SSA will treat those withheld months as if Linda had not received benefits during them. Since claiming before FRA reduces your benefit based on the number of months you collect early, removing those withheld months from the calculation results in a higher monthly payment going forward.

For example, if Linda had 18 total months of benefits withheld between age 63 and 67, her benefit at FRA would be recalculated as though she had claimed 18 months later than she actually did. This means her monthly payment would be permanently higher from FRA onward, partially or fully offsetting the amounts that were withheld.

The recalculation happens automatically — you do not need to apply for it. It takes effect in the month you reach FRA, though the first adjusted payment may be delayed by a month or two as the SSA processes the change.

The Payback Provision

Social Security offers a lesser-known option called the withdrawal of application. If you claimed benefits and later decide it was a mistake — perhaps because you went back to work full-time — you can withdraw your application within 12 months of your original claim date.

The catch: you must repay every dollar of benefits you have received, including any benefits paid to family members on your record and any Medicare premiums that were deducted from your checks. If you can afford the repayment, this provision essentially lets you start over as if you had never filed. Your benefits would then grow with delayed retirement credits if you wait to refile later.

This option is only available once in your lifetime and must be exercised within 12 months. After that window closes, the withdrawal option is no longer available, though you can still voluntarily suspend your benefits at FRA to earn delayed retirement credits up to age 70.

The Special First-Year Rule

In most cases, the earnings test is applied on an annual basis. However, there is a special monthly earnings test that applies in the first year you retire and begin collecting benefits. This rule is designed to protect people who retire mid-year after having already earned a significant income.

Under the special first-year rule, the SSA can pay you a full benefit for any month in which your earnings are below the monthly threshold, regardless of how much you earned earlier in the year. For 2025, the monthly limit is $1,860 (the annual $22,320 limit divided by 12) for those under FRA. For the year you reach FRA, it is $4,960 per month.

This means if you retire in July 2025 after earning $100,000 in the first half of the year, you can still receive full Social Security benefits for July through December as long as you earn no more than $1,860 in each of those months. Without this special rule, your high annual earnings would have eliminated most of your benefits for the entire year.

The special first-year rule generally only applies to the first year of retirement. In subsequent years, the standard annual earnings test is used.

Self-Employment Considerations

Self-employed individuals face additional nuances when collecting Social Security. Here are the key factors to keep in mind:

SECA taxes. Self-employment income is subject to the Self-Employment Contributions Act (SECA) tax, which covers both the employer and employee portions of Social Security and Medicare taxes. In 2025, this means paying 15.3% on net self-employment earnings up to the Social Security wage base ($176,100), plus the 2.9% Medicare portion on earnings above that amount. These taxes apply regardless of whether you are already collecting Social Security benefits.

The substantial services test. For self-employed individuals, the SSA does not just look at income — it also considers whether you are performing "substantial services" in your business. If you work more than 45 hours per month in self-employment (or between 15 and 45 hours in a highly skilled occupation), the SSA may consider that month as one in which you were not retired, even if your net earnings were low. This matters primarily for the special first-year rule, where the monthly earnings test is applied.

Net earnings reporting. Unlike wages, which are straightforward, self-employment earnings are reported as net income after business expenses. This gives self-employed individuals more flexibility in managing their reported income, though all deductions must of course be legitimate and properly documented.

Strategic Considerations

Given the complexity of these rules, when does it actually make sense to claim Social Security early while still working? And when is it better to wait? Here are several factors to weigh:

When early claiming while working may make sense:

• Your earnings are below the exempt amount. If you can keep your wages under $22,320 (the 2025 limit), you can collect your full Social Security benefit with no reduction. This could work well for someone doing limited part-time work.
• You have a shorter life expectancy. The break-even point for delaying Social Security is typically around age 80. If health concerns suggest a shorter lifespan, claiming early — even with some withholding — may result in higher total lifetime benefits.
• You need the income now. Sometimes cash flow needs in the present outweigh the advantages of a higher benefit later. If Social Security income is necessary to cover basic expenses during a transition period, claiming early may be the practical choice.

When waiting may be the better strategy:

• Your earnings will substantially exceed the exempt amount. If you plan to earn well above the $22,320 limit, a large portion of your Social Security could be withheld. While you do get credit at FRA, claiming under these circumstances adds complexity and may offer limited near-term benefit.
• You are in a high tax bracket. Social Security benefits can be taxable — up to 85% of your benefit may be included in taxable income depending on your combined income. Adding Social Security on top of significant wages could push you into a higher bracket, reducing the after-tax value of the benefit.
• You want to maximize your lifetime benefit. Each year you delay past 62 (up to age 70) increases your monthly benefit. From FRA to 70, benefits grow by 8% per year in delayed retirement credits. For a married couple where the higher earner's record will generate a survivor benefit, maximizing that benefit through delayed claiming can be especially valuable.
• You expect to live beyond the break-even age. If you are in good health with a family history of longevity, the math generally favors waiting. The higher monthly benefit from delaying compounds over a longer retirement and provides a larger inflation-adjusted income stream in your later years when healthcare costs tend to rise.

Tax Implications of Working and Collecting

Beyond the earnings test, working while collecting Social Security can affect how your benefits are taxed. The IRS uses a measure called "combined income" (also known as provisional income) to determine how much of your Social Security is subject to federal income tax:

Combined income is calculated as your adjusted gross income + nontaxable interest + 50% of your Social Security benefits. If you are working and earning wages on top of Social Security, it is common for combined income to push well above these thresholds, meaning up to 85% of your Social Security benefits could be subject to income tax.

This does not mean you lose 85% of your benefits — it means that 85% of the benefit amount is included as taxable income and taxed at your marginal rate. Still, this is an important planning consideration, particularly for people in the years between early claiming and FRA when both the earnings test and income taxes may be reducing the effective value of their benefit.

A Potential Upside: Higher Earnings Can Increase Your Benefit

There is one more factor worth mentioning: working while collecting Social Security may actually increase your benefit over time. Social Security benefits are calculated based on your highest 35 years of indexed earnings. If your current wages are higher than one of the years used in your benefit calculation, the SSA will automatically substitute the higher year, which increases your primary insurance amount (PIA) and, consequently, your monthly benefit.

This recalculation happens annually and automatically. You do not need to request it. For someone who had lower-earning years earlier in their career, continued work can provide a meaningful bump to their ongoing benefit amount — an often-overlooked advantage of working in retirement.

Bringing It All Together

The decision to work while collecting Social Security involves balancing multiple factors: the earnings test and its temporary withholding, tax implications, the benefit recalculation at FRA, and the long-term value of delaying your claim. There is no one-size-fits-all answer. The right strategy depends on your specific circumstances — your health, your income needs, your tax situation, your other retirement resources, and your goals for the years ahead.

What is most important is making the decision with full awareness of the rules. The earnings test is not a punishment for working — it is a temporary adjustment that the SSA reverses at your full retirement age. Understanding this can prevent the common mistake of either avoiding work unnecessarily or claiming benefits at a time that does not serve your long-term financial interests.

This article is for educational purposes only and should not be construed as tax, legal, or personalized financial advice. Social Security rules are subject to change, and individual circumstances vary. Consult with a qualified financial advisor or contact the Social Security Administration directly before making decisions about your benefits. The earnings thresholds and tax brackets referenced in this article reflect 2025 figures and may be adjusted in future years.