How Does The Earnings Test Work?

Dec 24 2016 - 10:00am

I still find the "Earnings Test" very confusing. When it talks about the "benefits withheld", does that refer to reduced social security payments from signing up before FRA or does it refer to "withholding $1 for every $2 (of $3) dollars earned? I am interested because I would like to know whether withheld pay from working will be refunded when a person reaches FRA or whether a person's social security payment will be increased when reaching FRA. Thank you for all you do to clarify a very confusing issue! Happy Holidays!


Happy Holidays to you, too!

I'll answer your question with an example. Say Charlie applies to start his Social Security benefits in January 2017 at age 62. Charlie plans to continue working part time, and will earn $22,920 in 2017. That's $6,000 more than the 2017 earnings test exempt amount of $16,920, so Social Security will need to withhold $3,000 of his benefits (i.e. $1 of benefits withheld for each $2 of excess earnings).

Charlie's full retirement age benefit rate would be $2,000, but his actual benefit rate is reduced for age to $1,500 per month because he is starting benefits at age 62. So, in this example, Social Security would withhold Charlie's check for 2 months, normally January & February, in order to cover the $3,000 that needs to be withheld due to his expected excess earnings. Charlie would then receive his full monthly check of $1,500 for the remaining 10 months of 2017.

Best, Jerry