Social Security Earnings Limitations

If your earnings are below certain annual limits, your Social Security benefits will not be affected.

If  your earnings are over the annual limit,

• you lose one dollar of Social Security benefits for every two dollars over the limit if you are under 65 throughout the year.
• you lose one dollar of Social Security benefits for every three dollars over the limit if you are 65 or over during the year.

The earnings of a retired worker affect all dependents receiving Social Security benefits on his or her account. However, a dependent's earnings will not affect the worker or any other dependent on the same account.

Only earned income is considered as part of earnings for these Social Security purposes. Click here to read more about earned income.

Monthly Earnings Limits

If your annual earnings are over the earnings limits set forth by Social Security, Social Security will determine the amount of benefits which must be withheld. There is one exception referred to as 'non-service month'. Social Security benefits will not be withheld from a non-service month no matter how high the annual earnings are.

Non-service month is determined by the Monthly Earnings Test. If you are an employee, any month after your entitlement month that your earn less than a certain amount, you have a non-service month. If you are self employed, there is no dollar limit. The Monthly Earnings test for self employed is whether you give substantial services to your business.

For example, generally, if you spend more than 45 hours per month at your business, your services are considered substantial and you cannot have a non-service month. However, if you spend less time than 45 hours per month on your business, your services are not substantial and you may have a non-service month.

You may be eligible for more than one non-service month in a year but you cannot be eligible for non-service months in more than one year. However, there are exceptions to this rule.

Grace Year

The year in which  you are eligible for non-service months is called a 'grace year'. Grace year is not necessarily the first year that you are entitled to your Social Security benefits.

Entitlement to as second Grace Year

There are two situations where certain beneficiaries are entitled to a second grace year. The first applies to a child, a young wife, or a  young widow. The second applies to any beneficiary who receives one type of Social Security benefit which terminates, but then becomes entitled to another type of Social Security benefits with at least a month break entitlement.