Ask Rusty: How Will Working Affect My First Year’s Benefits?

Dear Rusty: I retired from working in January of this year and have since claimed Social Security benefits. I didn’t work at all in February or March, but I began a part time job in April. I’m very confused about how Social Security counts earnings for the first year. I don’t know if I need to keep each month’s earnings under $1,770 or if they average it. Some of the literature I’ve found says each month must remain under $1,770 or NO benefit will be paid that month. Two people at the Social Security Administration (SSA) office told me that they’ll just dock me $1 for every $2 I am over that, even in my first year. I also cannot find anything about when [SSA] counts your income. Is it when it’s earned or when it’s paid? If I go over in a month because there are three pay periods, can they withhold the benefit for that month? I’m just so confused.

Signed: Part-Time Worker

Dear Part-Time Worker: The Social Security earnings test during your first year of collecting benefits before full retirement age (FRA) is, indeed, somewhat confusing. The reason is because there are two methods which the SSA may use during your first calendar year collecting early benefits, and it will use the one which results in the least financial impact to you. 

To elaborate: If you claim benefits mid-year before your FRA, for the remainder of that first year (starting in the month benefits begin and ending in December) you’ll be subject to a monthly earnings limit ($1,770 for 2023). If you exceed the monthly limit in any remaining month of that first calendar year, you won’t be entitled to benefits for that month, so the Social Security Administration would (eventually) take back that month’s benefit. That is, unless using the annual limit ($21,240 for 2023) instead will result in a smaller penalty. If your total earnings for your first year of collecting exceed the annual limit (e.g., $21,240 for 2023), the penalty would be $1 for every $2 over the annual limit and, if that is less than the penalty from using the monthly limit, the SSA will assess the smaller penalty. In other words, the agency will use the method which is most beneficial to you when assessing a penalty for exceeding the earnings limit during your first calendar year collecting benefits. And just for clarity, the earnings limits are much higher and the penalties less during the year you attain your FRA.

Something else to be aware of: if you know in advance you will exceed the annual limit it would be best to inform the SSA in order to avoid an Overpayment Notice next year. If you don’t, the agency won’t know about your 2023 earnings until you file your 2023 income taxes, so you’ll get your 2023 monthly payments as usual. But when the IRS informs the Social Security Administration of your 2023 earnings later next year, the SSA will ask you to detail your monthly work earnings for 2023. If you have exceeded the limits, it will determine an overpayment amount and will ask you to either pay back what is owed in a lump sum or will withhold your benefits for enough months to recover what you owe for exceeding the 2023 earnings limit. Then, after you reach your FRA, you’ll get time credit for all months in which benefits were withheld, thus slightly increasing your monthly payment after your FRA. 

Finally, it is when your income is earned that counts, not when it is paid. So, for example, if you worked in January 2023 and were paid for that work in February 2023, that is considered January income, which wouldn’t count toward the February earnings limit.        

Russell Gloor is a national Social Security advisor at the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens (AMAC). The 2.4-million-member AMAC says it is a senior advocacy organization. Send your questions to: ssadvisor@amacfoundation.org.

Author’s note: This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC