By Roger Wohlner
Many people wonder whether they can continue to work while collecting Social Security benefits. The answer is yes, but there are a few things to be aware of.
Your full retirement age (FRA)
Your FRA is a key part of determining how working can impact your Social Security benefits. Full retirement age is the age at which you are eligible for unreduced benefits. For those born from 1943-1954, their FRA is 66. For those born in 1955 it is 66 years and two months. FRA increases by two months for each birth year after that until it reaches age 67 for those born in 1960 or later.
Annual earnings limit
The Social Security Administration establishes an annual earnings limit for those who are receiving benefits and have not reached their FRA. For 2022, this limit is $19,560. For every $2 of earned income over this limit, your Social Security benefit would be reduced by $1. Earned income means income from employment or self-employment. It does not include interest or dividend income, income from investments or from a pension or an annuity.
For example, if your earned income is $24,560, the benefit reduction would be $2,500.
In the year that you reach your FRA, the 2022 earnings limit is $51,960 with a benefit reduction of $1 for every $3 of earned income over this limit.
Once you reach your FRA, there is no benefit reduction regardless of the amount of earned income that you have.
What happens to benefits withheld?
Benefits withheld due to earnings exceeding the annual earnings limit in the years before reaching your FRA are not lost to you. Rather, once you reach your FRA you receive credit for any benefits withheld. These withheld benefits will be returned to you in the form of higher benefit payments.
Social Security benefits can be subject to federal income taxes, regardless of whether or not you are working. Whether or not your benefits are taxed depends on your overall income. Working can, however, push you into a higher tax level for your benefits.
Taxes on Social Security benefits are based on your level of combined income. This includes your adjusted gross income (AGI) from your tax return plus any tax-exempt interest income earned plus one-half of your Social Security benefits for the year.
For those filing as single:
If your combined income is between $25,000 and $34,000 you may have to pay taxes on up to 50% of your benefits.