Payroll in Practice: 9.23.2024

Question: A staffing agency receives job applications from retirees who are receiving Social Security benefits. Is there a limit on the amount a retiree can earn without a reduction in Social Security benefits?

Answer: Many workers continue working or return to the workforce while receiving Social Security benefits. Workers who have not yet reached the full retirement age will have their Social Security benefits reduced if they earn more than a certain amount through their jobs.

The normal retirement age for Social Security benefit purposes is 67 for people born in 1960 or later. The earnings limit stops being applied in the month a person reaches their normal retirement age.

The Social Security Administration refers to the earnings limit as “the retirement earnings test,” and uses the term “exempt amounts” to mean the maximum amount of earnings that are exempt from a reduction in Social Security benefits based on earned income. If a person younger than the normal retirement age earns more than the applicable retirement earnings test amount, the SSA withholds Social Security benefits.

There are two exempt amounts: one for those who reach normal retirement age after the current year and another for those who attain that age in the current year. For 2024, the annual exempt amount is $22,320 for those younger than their full retirement age during all of 2024. The SSA withholds $1 in benefits for every $2 of earnings over $22,320.

The SSA does not pay partial monthly benefits. Instead, it relies on estimated earnings for the year and withholds benefits from the beginning of the year until the reduction amount is reached. After that, the SSA pays the normal benefit for the remainder of the year. The SSA adjusts the benefits the following year for overpaid or underpaid Social Security benefits.

For example, a 63-year-old individual is entitled to a monthly $600 Social Security benefit for all of 2024 but expects to work and earn $24,920 ($2,600 more than the earnings limit). The SSA will withhold the benefits for January through March ($1,800) and pay $600 per month for the remainder of the year. The benefit reduction is $1,300 ($1 for each $2 of the $2,600 overage). Because the SSA withheld a total of $3,100, it will refund the $500 in underpaid benefits the following year, in 2025.

For those reaching their normal retirement age in 2024, the annual exempt amount is $59,520. The SSA deducts $1 from benefits for each $3 earned above $59,520.

For example, an individual entitled to a $600 benefit for all of 2024, reaches normal retirement age in November 2024 and is expected to earn $63,000 from January to October ($3,480 more than the earnings limit). The SSA will withhold benefits for January and February and pay $600 per month for the remainder of the year. The benefit reduction is $1,160 ($1 for each $3 of the $3,480 overage). The additional $40 withheld in February will be refunded in 2025.

If 2024 is the first year of claiming benefits and the normal retirement age will be reached in 2025 or later, there is no limit on earnings prior to the Social Security start date. However, after that date, earnings are limited to $1,860 per month for the remainder of the year.

The earnings limit amounts change each year. The SSA provides a calculator on its website that employees can use to compute the effect of the earnings limit under various scenarios.

The SSA’s Publication 05-10069, How Work Affects Your Benefits, provides a detailed explanation of the earnings limits and how they work.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.

Author Information
Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

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