Working while retired – more about the annual earnings test

I wrote about the annual earnings test, also called the retirement test, in February. Today I will answer earnings test questions from recent pre-retirement seminars.  

The earnings test concerns how earnings from employment in a calendar year might affect your SSA retirement payable for that year.  Dollar amounts of the earnings test usually change each year.  

Annual earnings test amounts are based on your actual age during the year compared to your full retirement age (FRA). Three different earnings levels for the retirement test exist depending if you are under your full retirement age for the entire calendar year, if you reach FRA during the year, or if you are at or older than your FRA.  If born from 1943 – 1954, FRA is age 66.  It is different for other birth years. 

Earnings test amounts include your employment related income over the calendar year. Sometimes people who retire in mid-year already have earned more than the yearly earnings limit. For them, there is a special rule that applies to earnings for one year, usually the first year of retirement.   

Use of this special, one time, monthly earnings test lets you receive a full Social Security check for any whole month you are retired even if yearly earnings exceed earnings test levels.  Most often, this is used in the year of retirement. 

Q: I have monthly income from an annuity. Does this count for the annual earnings test?

A: No. Pension payments, annuities, interest, dividends or a good day at bingo are not included earnings for the annual earnings test even though they might be for income tax. Include only your income from gross wages and net income from self-employment over the calendar year.  

Q: My husband and I each receive Social Security. At age 64, he recently took a part-time job. I am not employed. If he gets close to his limit, can he also use my allowed earnings to prevent reduction of his Social Security?

A: For Social Security, you are two individual people. The annual earnings test applies to you separately. You can earn up to your annual allowed amount and he can earn up to his but amounts cannot be added together for one of you to use. This is the same whether you receive Social Security through your own earnings or whether a spousal benefit is involved. 

Q: Are earnings test amounts based on my age when I started Social Security retirement or my age now?

A: Amounts are based on your actual age this year, not your age when you started Social Security benefits. More specifically, annual earnings test levels are based on your age through the current calendar year. 

Noted above, three different earnings test levels exist depending if you are under your full retirement age (FRA) for the entire calendar year, if you reach FRA during the year, or if you are at or older than your FRA.  

For example, assume you reach full retirement age (FRA) in October 2012. Even though you are younger than FRA now, you will not be under FRA for the entire year. Since you reach FRA during 2012, use the higher earnings level for that. The earnings test no longer exists once you attain full retirement age. 

Q:  How does Social Security know how much I expect to earn?

A:  You tell us.  Reporting estimated earnings for the annual earnings test is one of your responsibilities.  During the year, you can adjust this estimate up or down as needed by contacting Social Security. At the end of the year, you report your actual earnings. Of course, your employer reports your earnings for taxes and W-2 purposes but it is better for all concerned when you provide timely and accurate estimates.

 See “How Work Affects Your Benefits” at www.socialsecurity.gov/pubs/10069.html.  Retirement planning tools are at www.socialsecurity.gov/retire2/index.htm.  

Different rules about employment earnings apply for Social Security disability benefits or Supplemental Security Income (SSI) for any reason. Contact Social Security for current information if working while receiving these benefits.

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