Earnings Test Explained

For individuals claiming Social Security benefits before reaching their Full Retirement Age (FRA) and who are still working, the Social Security Administration (SSA) applies the Earnings Test. The earnings test impact retirement insurance benefits, spousal benefits, and widow(er)'s benefits.

In 2027, the Earnings Test includes two key exempt amounts. The lower exempt amount is $25,560 for those who will not reach their FRA within the year. Under the withholding rules, $1 is withheld for every $2 earned above the lower exempt amount. This applies to all months before reaching FRA. The higher exempt amount is set at $67,920 and applies to individuals in the year they reach FRA, specifically to earnings made in months prior to this milestone. In the year you attain FRA, $1 is withheld for every $3 of earnings above the higher exempt amount, up until the month you reach FRA.

It’s important to understand that these withheld benefits are not forfeited. Once FRA is reached, the Social Security Administration recalculates the monthly benefit to account for previously withheld amounts, resulting in an increased monthly benefit for the rest of the individual's life.

A worker's FRA is determined based on their date of birth. See SSA Program Operations Manual System (POMS) RS 00615.003 Full Retirement Age.

For the Social Security Administration (SSA) earnings test, "income" specifically refers to work earnings. This includes:

• Gross wages for services rendered, which is the pay before any deductions such as taxes, insurance, pensions, and savings bonds.
• Net earnings from self-employment, which is the gross income from one's business minus allowable deductions for that business. If your net earnings are a loss, this loss is subtracted from your gross wages and any other net earnings from self-employment.

It's important to note that the earnings test does not count all types of income. Income that is not considered in the earnings test includes:

• Retirement income from sources such as a 401(k), 403(b), pension plans, and other similar retirement benefits.
• Investment income such as dividends, interest, or capital gains.
• Any government benefit income such as Veterans Benefits, Supplemental Security Income (SSI), or benefits from other social welfare programs.
• Special Payments after Retirement: bonuses, vacation pay, sick pay, insurance commissions, carryover crops, and others.
  • Most often the employer will report the “Special Payment” on form SSA-131 "Employer Report of Special Payments”.

For more information on determining income and counting types of income see SSA POMS RS 02502.240 Summary of How Major Types of Remuneration Are Treated.

For more information on these and other special payments, please review Special Payments After Retirement.

Earnings Test: Widow Insurance Benefit (WIB)

Jane was born in 1960. Her full retirement age for survivor benefits is 66 years and 8 months. Assume her unreduced widow benefit is $2,000 and she claims at age 60. The 28.5% early-filing reduction gives her an initial monthly benefit of $1,430.

If Jane has 24 full monthly benefits withheld because of the earnings test, SSA adjusts her reduction factor to credit those months. Excluding COLAs and other adjustments, the calculation is:

• Months from age 60 to survivor FRA: 80.
• Reduction per month: 28.5% ÷ 80 = 0.35625%.
• Remaining reduction months after credit: 80 − 24 = 56.
• Adjusted reduction: 56 × 0.35625% = 19.95%.
• Adjusted monthly widow benefit: $2,000 × (1 − 0.1995) = $1,601.

This example illustrates the adjustment for benefits withheld; actual payments also depend on COLAs, the deceased worker's benefit record, and SSA's applicable rules. The FRA used for the earnings test can differ from survivor FRA.

SSA full retirement age rules