As 2025 approaches, Social Security recipients and soon-to-be retirees need to brace for changes that could affect their financial planning. Among the key adjustments is the Social Security Administration’s (SSA) update to the earnings test for exempt amounts, a crucial factor for beneficiaries who are still earning income before reaching full retirement age. One notable change for 2025 is the increase in the higher monthly exempt amount from $4,960 to $5,180.
What Is the earnings test?
The Social Security earnings test limits how much beneficiaries who haven’t reached full retirement age can earn without having their benefits reduced. For 2025, the SSA has revised the exempt amounts, which determines how much you can earn before the SSA begins reducing your Social Security benefits.
The earnings test affects two groups: those who claim Social Security benefits before full retirement age (currently 67 for those born after 1960) and those in the year they reach full retirement age.
Lower monthly exempt amount in 2025
If you’re under full retirement age, Social Security allows you to earn a certain amount before reducing your benefits. For 2025, the lower exempt amount—applicable to those younger than the full retirement age—will be $1,950 per month or $23,400 annually. This is up from $1,860 per month or $22,320 per year in 2024.
Under the earnings test, for every $2 you earn over this exempt amount, your Social Security benefits will be reduced by $1. This means that if you continue working while collecting benefits before full retirement age and your earnings exceed the new limit, you will see a reduction in your Social Security check.
Higher monthly exempt amount for 2025
For beneficiaries who reach full retirement age during the year, a more lenient earnings test applies. In 2025, the higher monthly exempt amount will rise to $5,180, or $62,160 annually, up from $4,960 per month or $59,520 annually in 2024.
For every $3 earned above the exempt amount, your benefits will be reduced by $1, but only until the month you reach full retirement age. Once you hit full retirement age, the earnings test no longer applies, and you can earn an unlimited amount without any reduction in your benefits.
Why are these changes happening?
These adjustments are based on changes in the national average wage index, which reflects the increase in average wages across the US economy. The SSA uses statutory formulas to calculate exempt amounts, taking into account increases in the wage index from previous years. For instance, the lower monthly exempt amount is calculated by multiplying the 1994 monthly exempt amount of $670 by the ratio of the national average wage index for 2023 to that of 1992, rounding to the nearest $10. Similarly, the higher monthly exempt amount for 2025 is calculated using the 2002 exempt amount and wage indexes from 2023 and 2000.
