What Type of Income Reduces Social Security Benefits?

A significant component in determining how much of your benefit is determined by your earnings history Trending Videos

Social Security benefits are often synonymous with retirement. As of September 2023, the Social Security Administration (SSA) estimated that over 70 million Americans were receiving a monthly benefit check.

However, those who rely on this government program for more than just a monthly income source after leaving the workforce In addition, it offers benefits to disabled people, surviving spouses and children, and qualifying individuals additional income. It functions similarly to life insurance.

A number of factors, such as the length of time spent in the workforce, influence payments. Additionally, you need to have a qualifying medical condition in order to be eligible for disability benefits.

One thing most individuals dont consider is their earned income. This represents the total amount of money you will earn during your working career. Additionally, it is the most significant factor, so in the long run, your benefit amount will be better the more you earn.

Understanding the Impact of Work on Social Security Benefits

While receiving Social Security retirement or survivor’s benefits, you can still earn income through employment without jeopardizing your benefits. However, there are specific income types that can affect your benefit amount. This article delves into the details of income that reduces Social Security benefits and provides valuable insights for individuals receiving benefits while working.

Income Subject to Social Security Earnings Limits

The Social Security Administration (SSA) imposes earnings limits on individuals receiving benefits before reaching full retirement age. These limits apply to income earned from employment, including:

  • Wages and salaries: This includes all forms of compensation received from an employer, such as base pay, overtime, bonuses, and commissions.
  • Net income from self-employment: This refers to the profit earned from your business after deducting expenses.
  • Vacation pay: Accumulated vacation pay earned during your employment counts towards the earnings limit.

Income Exempt from Social Security Earnings Limits

Fortunately, not all income types are subject to Social Security earnings limits. The following income sources do not affect your benefit amount:

  • Dividends: Income received from investments in stocks or mutual funds.
  • Interest: Earnings generated from savings accounts, bonds, or other interest-bearing investments.
  • Capital gains: Profits realized from the sale of assets such as stocks, real estate, or collectibles.
  • Rental income: Income earned from renting out property.
  • Pensions: Retirement income received from private or government pension plans.
  • Annuities: Regular payments received from an annuity contract.
  • Military and government retirement benefits: Retirement income received from military or government service.
  • IRA distributions: Withdrawals from Individual Retirement Accounts (IRAs).
  • Inheritances: Money or assets received from an estate.
  • Lawsuit settlements: Compensation received from legal settlements.

Earnings Limit and Benefit Reduction Calculations

For individuals under full retirement age in 2024, the earnings limit is $22,320. If your annual earnings exceed this limit, your benefits will be reduced by $1 for every $2 earned above the limit. For instance, if you earn $24,920, your benefits will be reduced by $1,300 ($1 for every $2 earned over $22,320).

Once you reach full retirement age (67 for those born in 1960 or later), the earnings limit no longer applies, and you can earn any amount without affecting your benefits.

Special Rule for the First Year of Retirement

If you retire mid-year and have already earned more than the annual earnings limit, a special rule applies. You can still receive a full Social Security check for any whole month you’re retired, regardless of your yearly earnings.


  • You retire at age 62 on October 30, 2024.
  • You earn $45,000 through October and take a part-time job earning $500 per month.
  • Although your earnings for the year exceed the 2024 annual limit ($22,320), you will receive a Social Security payment for November and December. This is because your earnings in those months are $1,860 or less than the monthly limit for people younger than full retirement age.

Reporting Changes in Earnings

It’s crucial to inform the SSA if you anticipate your earnings for the year to differ from your initial estimate. This allows them to adjust your benefit amount accordingly.

Impact of Work on Future Benefits

Even if your benefits are reduced due to work, the withheld amount isn’t lost. It’s simply delayed. Upon reaching full retirement age, the SSA will recalculate your benefit, factoring in the withheld amounts. This ensures you receive the full benefit amount you’re entitled to.

Additional Benefit Increase Opportunities

Earning income while receiving Social Security can sometimes increase your future benefits. If your earnings during a benefit-receiving year make it one of your highest-earning years, the SSA may recalculate your benefit, potentially leading to an increase.

Understanding the impact of work on Social Security benefits is crucial for individuals planning their retirement income. While earnings from employment can affect your benefits before full retirement age, other income sources are exempt. By carefully managing your earnings and staying informed about the rules, you can maximize your Social Security benefits and enjoy a financially secure retirement.

Is Social Security Calculated With Gross or Net Income?

Your Social Security benefits are calculated using gross income.

Is Social Security Based on Income?

The 35 years of your life with the highest earnings are used to determine how much your Social Security benefit will be. The number of months in those years is then divided by the total earnings. The Social Security Administration also takes into account your decision regarding when to start receiving benefits. Your Social Security benefits are permanently lowered if you retire early and take it. Should you delay until you reach 70, your benefits will rise by 8% per year for every year that has passed since your FRA.

Social Security Income Limit: What Counts As Income?


What types of income does not affect Social Security benefits?

For the earnings limits, we don’t count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains.

What causes Social Security benefits to be reduced?

We’ll have to reduce your benefits, however, if your earnings exceed certain limits for the months before you reach your full retirement age. If you work, but start receiving benefits before full retirement age, we deduct $1 in benefits for every $2 in earnings you have above the annual limit.

Does unearned income reduce Social Security benefits?

Unearned income we do not count. (a) General. While we must know the source and amount of all of your unearned income for SSI, we do not count all of it to determine your eligibility and benefit amount. We first exclude income as authorized by other Federal laws (see paragraph (b) of this section).

What income stops paying Social Security?

The Social Security tax limit is set each year. In 2023, the limit was $160,200. For 2024, the Social Security tax limit is $168,600. To know if you exceed the limit, check your overall earnings.

How much does social security reduce benefits?

This is the amount by which Social Security will reduce the annual benefit. People can earn $50,520 before reaching full retirement age without affecting their benefits. And the amount of reduction is also just $1 for every $3 earned over the cap. In addition, income only counts against the cap until the month before full retirement age is reached.

How much does social security reduce a person’s income in 2024?

The Social Security Administration reduces your benefit by $1 for every $3 of earnings above the income limit in the year in which you reach full retirement age. In 2024 the income limit in the year a person reaches full retirement age is $59,520.

Can social security reduce my retirement benefits?

The Social Security Administration can reduce your Social Security retirement benefits if you do both of these things: Apply for Social Security retirement benefits before reaching your full retirement age. Are still employed when you begin taking Social Security retirement benefits and earn more than the annual limit from work.

How do Social Security benefits work?

Once annual earnings reach the cap amount, for every $2 a Social Security recipient under retirement age earns from working, the total annual benefit gets reduced by $1. For instance, say a recipient gets $1,000 a month in benefits and starts a part-time job that pays $20,000 a year. Subtracting $19,560 from $20,000 yields $440.

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