Understanding When The Monthly Earnings Limit Applies

There is an earnings limit for those receiving benefits who are under their full retirement age and receiving benefits. This limit does not apply to those receiving Social Security Disability Insurance. When beneficiaries with disabling conditions return to work, they should consider the work incentives available to assist them and the return to work rules specific to disability benefits.  The earnings limit does apply to retired workers, their spouses and children, and widows, widowers and surviving children under full retirement age.

Generally, Social Security applies the work limit on an annual basis.  The limit in 2017 for someone under full retirement age is $16,920 in 2017.   The monthly limit is one-twelfth of the yearly limit earned each month and is only used in certain circumstances that would be advantageous to you.

Let’s say that you file for benefits in January, 2017 and you are under full retirement age.  Your limit is$16,920 , but you plan to work for the first six months of the year and earn  $50,260.00..  Since you will earn $50,260.00 and the limit is $16,920.00, you have earned $33,340.00  over the limit. If you exceed the earnings limit, we withhold one dollar in benefits for each two dollars you earn over the limit.  That means we would divide  the amount over the limit ($33,340.00)  by two and withhold that many dollars from your Social Security checks.  Let’s say you receive the average monthly Social Security check of $1360 per month.  We would divide $33,340.00 by 2 to equal $16,670.00 in benefits to be withheld, but a year of benefits at $1360 per month is $16,320.00.  Since the amount to be withheld is greater than the benefits available to be paid, we cannot pay any benefits based on the annual earnings limit.

But if this is your first year of retirement,  we can use a special rule that allows you to be paid a Social Security check for any month you are under one-twelfth of the yearly limit.  $1410.00 per month is one-twelfth of $16,920.00, so you could be paid for any month in the year you under that limit.  You would be well over the monthly limit for the first six months, but you could receive Social Security payments for July through December if you had no additional earnings in the year.

We ask what your earnings will be in the year we will pay you retirement benefits and what months you will earn under the monthly limit to determine if using the monthly test will be an advantage to you.  We figure how many months we will pay you if you continue to work in retirement based on your estimate of earnings.  It is in your best interest to give us the closest estimate of your earnings that you can.  If you estimate too high for the year, we may withhold too much in benefits.  If you estimate too low, you may owe us money back.  When we receive a copy of your W-2 from your employer the following year, we reconcile any difference between what you estimated and what we withheld.  You can speed the reconciliation process by providing us a copy of W-2 when you receive it if you are working while receiving benefits.

For more information, visit https://www.ssa.gov/pubs/EN-05-10069.pdf.