Social Security Income Limit 2023
Note: The Social Security earnings limit changes each year. The most current version of this article uses numbers for 2023.
At one of my first speaking engagements, I heard a great story from one of the attendees. Her experience provides us with one of the best examples I’ve ever heard of pearson age calculator
much the Social Security income limit can catch you by surprise .
A few years earlier, she’d been at her bridge club when the topic turned phệ Social Security. As she & the other thẻ players chatted about the best way bự leverage Social Security Benefits, the consensus around the table seemed bự be that filing at 62 was the smartest thing phệ bởi .
This lady, trusting the advice of some of her closest friends, did just that : She filed for benefits as soon as she turned 62 .
She then told me she’d always wanted béo buy a brand-new Toyota Camry. She figured that, once she started receiving Social Security income, it would be the perfect thời gian lớn buy the oto. She was still working, which meant her Social Security kiểm tra would be extra income .
As she told the story bự me, she bought the oto & took out a oto loan Khủng bởi it. She planned Khủng repay the loan using some of the income she expected phệ receive from her Social Security benefits since she filed for them .
Imagine her surprise, then, when a nasty letter from Social Security Administration showed up in her mailbox. The letter claimed she had been paid benefits that she was not eligible for !
The Social Security Administration not only asked her bự pay the benefits back, but also informed her that future benefits would be suspended due phệ her income .
Now she had a hot nhất oto & a oto loan, without the Social Security benefits she planned mập use béo handle that monthly payment. What happened here ?
Something that surprises more than just the poor Camry owner who approached me that day : the Social Security income limit .
What Is the Social Security Income Limit?
The earnings limit is also known as the income limit, or the earnings chạy thử. The official term is “ earnings demo, ” but income limit và earnings limit are the terms that you’ll hear most often .
For our purposes, know that all these terms mean the same thing — và there are four quick facts about the Social Security income limit that you should know before we jump all the way into explaining the chạy thử or limit :
- Be aware that we are talking about Social Security income limits for retirement benefits, not disability or SSI.
- The earnings limit on Social Security is not the same asincome taxes on Social Security. Don’t get the two confused !
- The earnings limit does not apply if you tệp tin for benefits at your đầy đủ retirement age or beyond. Thes e limits only apply bự those who begin taking Social Security benefits before reaching đầy đủ retirement age .
- The earnings limit is an individual limit. If you are still working, & your spouse is drawing Social Security ,your earnings will not count towards their income limit.
Why We Have An Earnings Limit
Not long ago, a viewer on my YouTube channel asked me phệ give her a good reason why we have the Social Security earnings limit. The comments that followed showed how many viewers shared the belief that the earnings limit is unfair và should be eliminated .
In my response, I explained that the rationale behind the entire program of Social Security was mập create a safety net. The original intent of the Social security program was not lớn supplement retirement income, but bự keep the elderly ( most of whom lost any potential long-term wealth in the Great Depression ) out of poverty .
I also added that today’s earnings limit is relatively generous compared to where the Social Security earnings limit began. The original Economic Security Bill (which is what the Social Security Act was originally called) President Roosevelt sent to Congress featured a very restrictive earnings limit.
That bill stated, “ No person shall receive such old-age annuity unless. .. He is not employed by another in a gainful occupation. ”
Whoa ! This means that if you had even a single dollar in wages from a job, you could not collect a Social Security benefit at all .
( If you’re curious, you can read more about the history of the Social Security earnings limit here. )
Thankfully, the system we have in place today allows for individuals mập have some earnings from work while they are receiving a Social Security benefit .
However, it’s very important phệ stay informed on the dollar amount of this limit because it changes every year .
For 2023, the Social Security earnings limit is $21,240. For every $2 you exceed that limit, $1 will be withheld in benefits.
The exception mập this dollar limit is in the calendar year that you will reach đầy đủ retirement age. For the period between January một và the month you attain đầy đủ retirement age, the income limit increases phệ $ 56,520 ( for 2023 ) without a reduction in benefits. For every USD ba you exceed that limit, USD một will be withheld in benefits .
This means that if you have a birthday in July, you’ll have a 6 month period with an increased income limit before it’s dropped completely at your đầy đủ retirement age. This increased limit và decreased withholding amount allow many individuals lớn retire at the beginning of the calendar year in which they attain đầy đủ retirement age, rather than waiting until their actual birthdays .
Again, once you reach đầy đủ retirement age, there is no reduction in benefits regardless of your income màn chơi .
A Real-Life Example of the Social Security Income Limit in Action
To put these numbers into context, let’s look at an example of how this might work in a real-life scenario :
Rosie is 64 years old. She started taking Social Security benefits as soon as she turned 62. Based on her birth year, her đầy đủ retirement age is 66 .
Right now, Rosie is eligible for $ 20,000 in Social Security benefits per year. She also worked during the year & made $ 31,240 in wages .
The question we want phệ understand is, how much was Rosie’s benefit reduced by working while on Social Security ? To answer that, we first need lớn calculate how much Rosie was kết thúc the Social Security earnings limit for her age .
In 2022, Rosie filed for Social Security ; she received her first kiểm tra in January of 2023. Throughout the year she received $ 1,667 in benefits every month. Without knowing the rules, she also worked và earned $ 31,240 in wages .
With a Social Security earnings limit of $ 21,240, she was kết thúc by $ 10,000 :
USD 31,240 Total Wages – the Social Security Income Limit of $ 21,240 = $ 10,000 Income in excess Of limit
Because this is a đầy đủ calendar year during which Rosie is receiving benefits but is not yet đầy đủ retirement age, the benefits reduction amount is USD một reduction for every USD 2 in excess wages. Since she was end the limit by $ 10,000, her benefits will be reduced by $ 5,000 .
The benefit reduction calculation would appear as follows :
USD 10,000 Income in Excess of Limit x 50 % ( USD một reduction for every USD 2 kết thúc limit ) equals a $ 5,000 Benefit Reduction
With a $ 5,000 benefits reduction for exceeding the income limits, Rosie’s $ 20,000 yearly Social Security benefit will be reduced Khủng a $ 15,000 benefit for the year. In the following year, she would attain her đầy đủ retirement age và after her birthday, the limit would no longer apply .
How Does The Income Limit Affect Spousal, Survivor, or Children’s Benefits?
There are millions of individuals who receive benefits as an “ auxiliary ” of a retired or disabled worker. Thes e auxiliary beneficiaries are also subject phệ the same earnings chạy thử .
See the chart below for more detail on how the limits are applied bự each type of benefit .
Special Monthly Income Limit Rule for the First Year (or, Your Grace Year)
Many people who retire mid-year have already earned more income than the limit allows. This is why there is a special rule where the earnings limit switches from an annual limit bự a monthly limit. ( Thes e monthly limits are 1/12 of the annual limit. )
This rule allows you phệ receive a kiểm tra for any month you are considered “ retired ” by the SSA even if you have already exceeded the annual earnings limit .
That sounds straightforward enough — but the interpretation of “ retired ” as defined by the SSA can cause some confusion. Here’s what they mean by this term :
You are retired if your monthly earnings are 1/12 of the annual limit ( $ 1,770 for 2023 ) or less & you did not perform substantial services in self-employment .
Essentially, you are considered retired unless you make more than the income limit. The rule for the year you reach đầy đủ retirement age also applies when working with the monthly limit. In this calendar year for 2023, the limit is $ 4,710 ( 1/12 of $ 56,520 ) .
It’s very important Khủng remember that in the year following this first year, the monthly limit is no longer used và the earnings limit is based solely on your annual earnings limit .
How the Earnings Limit Is Applied
The most confusing part of the benefit reduction due mập income is how it’s reflected in your monthly benefits deposits. Instead of taking out a little bit every month, the SSA will withhold several months of benefits at a phút giây .
If you predict in advance that you will have excess earnings và báo cáo this bự the Social Security Administration, they may take a few months of benefits before you actually earn the anticipated excess earnings .
For example, if your Social Security payment is $ 1,667 per month, và you expect mập receive $ 31,240 in wages from your job, the Administration would calculate that you’ll be kết thúc your earnings limit by $ 10,000 và thus $ 5,000 in benefits should be withheld. So, they would withhold your benefit payment from January phệ March. In April, your checks would resume .
If you don’t báo cáo excess income before you earn it, then you have mập báo cáo this information after the fact. You can bởi this when you tệp tin your income tax return, but the preferred method is Khủng be proactive và Điện thoại tư vấn your local Social Security Administration office .
If you wait for the Social Security Administration phệ learn of your excess earnings via your tax return, there could be a significant gap between the giây phút you earn the excess income và the giây phút that they withhold your benefits. In most cases, it’s better béo báo cáo the excess earnings quickly so the benefits reduction occurs closer lớn the giây phút you actually earn that extra income .
Regardless of whether your benefits are withheld in advance or in arrears, benefits withholding can make budgeting và planning difficult, especially if you don’t understand the system. You may need bự create a separate savings trương mục phệ phối some of those earnings aside béo compensate for benefits withholding that will occur in the future .
What Kind of Income Counts as Earnings?
The Social Security income limit applies only béo gross wages và net earnings from self-employment. All other income is exempt, including pensions, interest, annuities, IRA distributions, và capital gains .
The term “ wages ” refers béo your gross wages. This is the money that you earn before any deductions, including taxes, retirement contributions, or other deductions .
If you want béo see a more in-depth conversation about what counts as income for the earnings limit, see my article on the Social Security Income Limit : What Counts as Income ?
What to Do If Your Benefits Are Already Being Withheld
If you’re subject Khủng the Social Security earnings limit, don’t wait for the SSA béo start reducing the benefit you receive. Instead, I’d recommend voluntarily suspending benefits .
If you wait for the Social Security Administration béo discover that you’ve earned too much working while receiving benefits, your risk of an overpayment notice is higher .
Either way, you aren’t missing payments that you’ll chưa bao giờ get back. Your benefit amount will be recalculated at your đầy đủ retirement age ( or when you stop working ) béo reflect the months that benefits were withheld .
The best way bự avoid the earnings limitation is bự wait until đầy đủ retirement age mập tệp tin for benefits. If you can’t wait, make sure you have a clear understanding of how working impacts your Social Security benefits .
If you still have questions, you could leave a bình luận below, but what may be an even greater help is mập join my FREE Facebook members nhóm. It’s very active và has some really smart people who love béo answer any questions you may have about Social Security. From thời gian phệ giây phút I’ll even drop in béo add my thoughts, too .
You should also consider joining the nearly 400,000 subscribers on my YouTube channel ! For visual learners ( as most of us are ), this is where I break xuống dốc the complex rules & help you figure out how bự use them béo your advantage .
One last thing that you don’t want to miss: Be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just one page.
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