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If I Earn Too Much Money, Can I Lose Social Security?

October 15, 20192 min read

Prior to the passage of the Senior Citizens Freedom to Work Act in 2000, the earnings penalty applied all the way until age 70. Prior to that, working seniors were limited in how much they could earn before age 70.

The Senior Citizens Freedom to Work Act changed that to your full retirement age (FRA).

For many years the FRA was 65.  For people born prior to 1938 FRA was 65.

For Americans born in 1960 or later it is 67.  For Americans born between

1943 and 1954 it is age 66. For people born after 1938 and before 1943 there was a sliding scale of 65 plus so many months before they reached their exact FRA.  If you were born after 1954 but before 1960 there is a similar scale of 66 plus months for you to calculate your exact FRA.

If you are between age 62 and your FRA there is a limit to what you can before the government withholds some or all of your Social Security benefits.

Remember this is an earnings penalty and not a tax.  Social Security has a benefit formula at FRA to treat the months that you did not receive a check as if you had not elected benefits for that month.

In 2013, the government will allow you to earn up to $15,120 before they start withholding your Social Security benefits.  For every $two you earn above that threshold your benefit is reduced by $one.   This applies to all years leading up to the year in which you attain your FRA.

During the year that you attain your full retirement age the exempt amount increases to $40,080 and for every $three you earn above the exempt amount $one will be withheld from you Social Security benefits.

If you are working for somebody else your gross wages or salary is considered to be earned income by Social Security.  If you are self-employed then only your net earnings count in the earnings test. Unlike income tax calculations employee contributions to pension or retirement plans are included in gross wages by the Social Security Administration.

This only applies to active earnings.  Government benefits, investment earnings, interest, pensions,  annuities, rents, and capital gains are not considered as earnings by Social Security and do not apply toward calculation of the earnings penalty.

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