How Does Social Security Withhold Benefits If You Earn Too Much?

Mar 28 2019 - 9:15pm

I am 63 (birthdate 6/30) and self-employed. My income is extremely variable, because part of it is yearly fees that bunch up in January and July and the rest is unpredictable sales but in amounts between $700 to several thousand (if I have a good month). I'm thinking of starting benefits to help smooth out living expenses. Here are the particulars:

Proposed start date: March (almost over, though)
Estimated AGI: $29,000
Estimated benefit: $2,056/month

My own estimates show this would result in either 2 or 3 months of benefits withheld. What I can't figure out:

1) Is amount withheld exactly the amount of those checks or does any remainder become a pro rata adjustment on the next check received?

2) Is the calculation based on the $29,000 or the equivalent partial income amount for Mar-Dec?



Your net earnings from self employment (NESE) for the entire calendar year would count for purposes of Social Security's annual earnings test, regardless of which month you file for benefits. If you estimate that your 2019 NESE will be $29,000, Social Security would initially withhold as many full monthly payments as it takes to cover $1 of benefits for each $2 that your estimate exceeds the exempt amount of $17,040. Then, at the end of the year after you've filed your tax returns and your exact 2019 NESE is known, Social Security would go back and pay you any additional benefits that you are due. But, if you earn more than you estimated you could end up being overpaid, which you would be expected to pay back.

For example, say that you file for benefits effective March 2019 and your monthly benefit rate is $2056. If you estimate your 2019 NESE will be $29000, $5980 of your 2019 benefits would need to be withheld (i.e. ($29000 - $17040)/2). Social Security would accomplish that by withholding all of your benefits for March, April and May, which in this example would amount to $6168. You would then be paid all of your benefits for the months June through December. If it turns out that you end up earning exactly $29,000 in 2019, Social Security would later refund to you the excess withholding of $188 (i.e. $6168 - $5980).

Before filing, you may want to strongly consider using our software to fully explore and compare all of your options so that you can be sure to choose the best possible strategy for claiming your benefits.

Best, Jerry