Types Of Income Included In The Social Security Earnings Test
Many retirees continue to work after filing for Social Security benefits. However, if you have yet to reach your Normal Retirement Age (NRA), your income will be subject to an Earnings Test. If your income exceeds the allowed threshold, your monthly benefit will be reduced. That’s why it’s important to understand what income is included in the Earnings Test.
Income That Is Considered Earned
As defined by the IRS, earned income includes all taxable income and wages you receive from working for someone else, yourself, or a business or farm that you own. Fortunately for feds, this does not include distributions from your TSP or your FERS annuity (pension).
Income Not Included In The Earnings Test
- TSP Distributions
- Your FERS annuity (pension)
- Social Security
- The Retiree Annuity Supplement
- Lump-sum annual leave payments
- Distributions from your traditional TSP
- Distributions from traditional IRAs
- State income tax refunds
- Interest, Dividends, Capital Gains & Alimony
- Unemployment compensation
- Lottery jackpots
Earnings Limit
For 2024, the Earnings Limit is $22,320. If you earn more than $22,320 in 2024 while collecting benefits, $1 will be withheld from your benefit for every $2 in earned income above the limit. In 2025, that figure rises to $23,400.
Social Security allows for a more generous Earnings Test in the year you reach your NRA. For those who reach their NRA in 2024 and continue working while collecting benefits, you can earn up to $59,520 without a reduction of your benefit. If you earn more than $59,520 in 2024, $1 will be withheld for every $3 in earned income above the limit for the months prior to turning your NRA. In 2025, the annual exempt amount is $62,160.
Benefit Reductions Due To The Earnings Test Are Temporary
Benefits reduced by the Earnings Test are temporary. Once you turn your NRA, there’s no limit on your earnings and your benefit is recalculated to give you credit for the amount withheld under the Earnings Test.
Unfortunately, filing for Social Security before reaching your NRA reduces your benefits permanently. For example, if you were born in 1960, your NRA is 67 but, if you file early at age 62, your benefit is reduced by 30% for the rest of your life.
To find a strategy that keeps you on track for a successful retirement, contact an FRC® trained advisor.
