Working While Collecting Social Security? The Tax Surprise No One Warns You About.

Are you considering continuing to work while you collect Social Security? Working part-time to complement your retirement benefits certainly sounds like a good idea. But make sure you're aware of the surprise tax that will be imposed on your extra income until your full retirement age (67 for anyone born in 1960 or later).

Depending on your birth date, the Social Security Administration (SSA) sets an annual earnings limit. If your income (not including your Social Security benefit) exceeds that limit, the SSA will withhold part of your benefit each month. The SSA will deduct $1 from your benefit payments for every $2 in wages that you earn above your annual limit.

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For example, if you were born on April 2, 1964, you're now eligible to receive Social Security benefits because you recently turned 62, which is considered the early eligibility age. But if you also work and earn more than $24,480 a year (or $2,040 a month), all income above that amount will effectively be taxed at 50%, which is much higher than the top 37% marginal income tax rate.

In addition to that benefit reduction, you may also owe taxes on income you earn during retirement (and Social Security benefits are also taxable, depending on your total income).

The benefit reduction is also made in the calendar year that you reach full retirement age, up until your birthday that year, with the SSA withholding $1 for every $3 you make above an annual limit, though that limit is higher. In 2026, that higher limit is set at $65,160.

Fortunately, once you reach full retirement age, which you can compute here, how much you work and earn won't affect your benefits.

So, it makes sense to carefully review your annual earnings limit when planning your retirement.

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