Every year, the Social Security Administration (SSA) updates the amount of money you can earn without seeing a reduction in your Social Security benefits. This is called the Social Security Earnings Test, and it affects those who receive benefits before they reach Full Retirement Age (FRA).
If you earn more than a certain amount, the SSA will reduce your benefits for that year. However, once you reach your FRA, you can earn unlimited income without any penalty.
Who is Affected by the Rule?
The Social Security Earnings Test applies to everyone who receives benefits before they reach their Full Retirement Age (FRA).
This includes retired workers and their family members who are eligible for benefits. If you’re receiving Social Security benefits and haven’t yet reached FRA, you need to pay attention to the income threshold, as earning above this amount will lead to a reduction in your benefits.
Once you hit your Full Retirement Age, the SSA will no longer reduce your benefits no matter how much you earn. You can also continue working and earning as much as you want without losing any Social Security benefits.
It’s important to note that the Social Security Earnings Test only looks at earned income. This means that any income from investments, like dividends or capital gains, doesn’t count. The SSA is only interested in income that comes from labor, whether you are working for an employer or are self-employed.
If you are self-employed, you should know that even if you work as an independent contractor, your earnings will still be counted under the Earnings Test. So, if your total earnings exceed the set threshold, your benefits could be reduced.
What is the Earnings Threshold for 2025?
In 2024, the earnings threshold for Social Security beneficiaries is $22,320 per year or $1,860 per month.
This means that if you earn more than this amount and haven’t yet reached your Full Retirement Age, your benefits will be reduced. Starting in January 2025, this threshold will increase to $23,400 per year or $1,950 per month.
So, if you’re earning over $23,400 annually or $1,950 monthly in 2025 and you haven’t reached FRA yet, expect to see your Social Security benefits reduced.
This increase in the threshold means that more people will be able to earn a bit more money before their Social Security payments are affected.
What Happens After You Reach Full Retirement Age?
Once you reach your Full Retirement Age, you won’t have to worry about the Social Security Earnings Test anymore. This means that you can earn as much as you want, and your benefits will not be reduced.
This is great news for people who plan to continue working past their FRA and want to maximize their income while still receiving Social Security.
However, even after you reach FRA, it’s important to note that the Social Security Administration will still tax your benefits if your income exceeds certain levels.
The tax rate and the specific income levels vary, so it’s important to check with the SSA to understand how your benefits will be taxed based on your income.
Why is This Update Important?
The increase in the earnings threshold for 2025 is important for people who are considering working while receiving Social Security benefits.
Many retirees choose to work part-time or even full-time during their retirement, and having the ability to earn more money without reducing Social Security benefits can be a major benefit.
For example, if you are currently earning $1,900 a month in 2024, your Social Security benefits will be reduced. But starting in 2025, you can continue earning that amount without seeing any reductions in your Social Security check.
This provides some financial relief for people who are trying to balance retirement savings and income.
What Should You Do Now?
If you are nearing Full Retirement Age or planning to keep working while receiving Social Security benefits, now is the time to take a closer look at how the Earnings Test will impact your finances.
Keep in mind that the rules around Social Security and taxes can be complicated, so it’s always a good idea to consult with a financial advisor or tax professional to understand how these changes might affect you.
Conclusion
The Social Security Earnings Test is an important factor for anyone who is receiving Social Security benefits before reaching Full Retirement Age.
The upcoming change to the earnings threshold for 2025 offers more room for people to earn money without seeing a reduction in their benefits.
If you plan to keep working in retirement, staying updated on these changes can help you make the best decisions for your financial future.
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