Social security test is critical for individuals who are working but are already receiving social security benefits. These benefits are indispensable to the financial well being of millions of American families. Funds disbursed by the Social Security Administration (SSA) are targeted at individuals with disability, retirees, and families who have lost a loved one. For individuals who are working but receive social security benefits, social security earnings test, understanding what counts as earnings is important to effectively manage your finances and avoid a reduction of your benefits by the SSA.
What is social security earnings test
Social security earnings test is for individuals who are working but receive social security benefits before reaching the Full Retirement Age (FRA) especially those that earn above the required income limit by the SSA. With the earnings test, your social security benefits will be decreased before reaching your FRA. However, on reaching your FRA, your benefits will be increased. This does not mean that benefits withheld before FRA is lost. On reaching your FRA, they will be added to your benefits every month. So basically, the SSA recalculates your benefits on reaching your FRA, adding all withheld benefits before FRA.
What is the income limit for social security earnings test
For 2024. The income limit for beneficiaries who are receiving their benefits without reaching Full Retirement Age is $22,320 annually. However, on reaching the FRA, the annual income is $59,520. When your income exceeds this amount then the SSA will withhold $1 for every $2 for those who get benefits before reaching FRA. However, for those who get benefits on reaching FRA and earn above the income limit, $1 will be withheld for every $3.
What counts as social security earnings test
Wages and Salary
This includes all the income from employment where you are paid as an employee. Your wages, bonuses, and any other compensation you receive from your employer are considered earnings. This is applicable whether you are working as a part-time or full-time employee.
Self-Employment Income
If you are self-employed, then net earnings from your business activities count as earnings. This is calculated by the SSA based on your gross income minus your allowable business expenses. The SSA will use your net earnings to determine if you exceed the annual earnings limit.
Commissions and Bonuses
All commissions earned from your sales and bonuses received in the course of your employment is included in your earnings. These are considered part of your total income and will also be used by the SSA during your earnings test.
Income from Second Jobs
If you have more than one job, the total income from all sources are considered. Even if one job alone does not exceed the earnings limit, the combined income from all your employment will be evaluated by the SSA during your earnings test.
Earnings excluded when calculating your social security earnings
Investment Income
Every earnings from your investments, such as dividends, interest, and capital gains, do not count towards the earnings test. These types of income are not considered when evaluating whether you have exceeded the earnings limit.
Pensions and Annuities
Income from your pensions, retirement accounts, and annuities is not counted as earnings. These payments are separate from your wages or self-employment income and do not have any effect on the earnings test.
Rental Income
If you earn money from renting out your property, this income is not included in the earnings test. Your rental income is treated differently and does not affect your benefits.
Social Security Benefits
Payments received from social security itself, such as disability benefits or survivor benefits, are not counted as earnings. The earnings test applies only to earned income from work.
