2023 Social Security Income Limit - Social Security Intelligence (2023)

Note: The Social Security income cap changes each year. The most current version of this article uses figures for 2023.

At one of my first conferences, I heard a great story from one of the participants. His experience is one of the best examples I've heard of how much the Social Security income limit can surprise you.

A few years earlier, she had been at her bridge club when the topic had turned to Social Security. As she and the other card players discussed the best way to take advantage of Social Security benefits, the consensus around the table seemed to be that registering at age 62 was best.

This lady did just that, relying on the advice of some of her closest friends: She applied for benefits as soon as she turned 62.

Then he told me that he had always wanted to buy a new Toyota Camry. He figured that once he started collecting Social Security income, it would be the perfect time to buy the car. He was still working, which meant his Social Security check would be extra income.

When he told me the story, he bought the car and took out a loan. He planned to repay the loan with part of the income he expected to earn from his Social Security benefits since he applied for them.

So imagine her surprise when an ugly letter from the Social Security Administration showed up in her mailbox. The letter said that he had received benefits to which he was not entitled!

The Social Security Administration not only asked him to return his benefits, but also told him that future benefits would be suspended based on his earnings.

I now had a new car and an auto loan with no Social Security benefits that I wanted to use to pay my monthly bill. What happened here?

Something that surprised me more than the poor Camry owner who spoke to me that day: the Social Security income cap.

What is the social security income limit?

The income limit is also known as the income limit or income test. The official term is "merit test."income limitmiincome limitare the terms you will hear the most.

For our purposes, you should know that these terms all mean the same thing, and there are four quick facts about the Social Security earnings cap to know before we begin to explain the test or cap:

1. Please note that these are the Social Security income limits for retirement benefits,noDisability or SSI.
2. The Social Security income limit is not the same as theSocial security income tax🇧🇷 Don't confuse the two!
3. The earnings limit does not apply if you claim benefits at full retirement age or beyond. These limits only apply to people who receive Social Security benefits before reaching full retirement age.
4. The win limit is an individual limit. If you are still working and your spouse is on Social Security,Your income does not count toward the income limit.

Why do we have an income limit?

Not too long ago, a viewer of my YouTube channel asked me to give him a good reason why we have a Social Security income cap. The comments below showed how many viewers felt the win cap was unfair and should be removed.

In my response, I explained that the whole social security program was made to create a safety net. The original intent of the Social Security program was not to supplement retirement income but to keep seniors (most of whom lost any potential long-term wealth during the Great Depression) out of poverty.

I added that the current income cap is relatively generous compared to the previous Social Security income cap.The original Economic Security Bill (that's the original name for the Social Security Act) sent to Congress by President Roosevelt contained aa lot ofrestrictive income limit.

That bill states: “No one will receive such an old-age pension unless . 🇧🇷 🇧🇷 He doesn't work for anyone else."

Wow! That means you couldn't get Social Security benefits if you were earning $1 at a job.

(In case you are curiousYou can read more about the history of the Social Security income limit here..)

Fortunately, the system we have today allows people to earn some income from work while receiving Social Security benefits.

However, it is very important to keep track of the dollar amount of this limit, as it changes each year.

For 2023, the Social Security income limit is $21,240.For every $2 over this limit, $1 in benefits will be withheld.

The exception to this dollar limit is the calendar year in which you reach full retirement age. For the period from January 1 to the month in which you reach full retirement age, the earnings limit increases to $56,520 (for 2023) with no reduction in benefits.For every $3 over this limit, $1 in benefits will be withheld.

This means that if your birthday is in July, you will have an increased income limit for 6 months before you reach full retirement age. This increased limit and reduced deductible allows many people to retire early in the calendar year in which they reach full retirement age, rather than waiting until their actual birthday.

Again, there is no reduction in benefits after you reach full retirement age, regardless of your income level.

A real-world example of the Social Security earnings cap in action

To put these numbers in context, let's look at an example of how this might work in a real world scenario:

Rosie is 64 years old. She began receiving Social Security benefits as soon as she turned 62. Based on her birth year, her full retirement age is 66.

Rosie is currently entitled to $20,000 in Social Security benefits per year. She also worked during the year and earned $31,240 in wages.

The question we want to understand is how much was Rosie's work benefit cut during Social Security?To answer this, we first need to figure out how much Rosie was over the Social Security income limit for her age.

In 2022, Rosie applied for Social Security; She received her first check in January 2023. She received $1,667 in benefits every month for the entire year. Without knowing the rules, she also worked and earned a salary of $31,240.

With a Social Security income cap of $21,240, he exceeded them by $10,000:

Total wages of $31,240: the Social Security income threshold of $21,240 = income of $10,000 over the threshold

Because this is a full calendar year in which Rosie receives benefits but has not yet reached full retirement age, the pension reduction is $1 for every $2 overpaid. Because she crossed the $10,000 threshold, her benefits will be reduced by $5,000.

The drawdown calculation would look like this:

Earning $10,000 over the threshold x 50% ($1 reduction for every $2 over the threshold) equals a $5,000 benefit reduction

With a $5,000 cut in benefits for exceeding the income limit, Rosie's annual Social Security benefit is reduced from $20,000 to an annual benefit of $15,000. She would reach full retirement age the following year, and after her birthday the limit would no longer apply.

How does the income cap affect benefits for spouses, survivors or children?

There are millions of people who receive benefits as "assistants" of pensioners or disabled people. These beneficiaries are also subject to the same income test.

See the table below for more details on how the limits apply to each type of benefit.

Special monthly income limit for the first year (or your free year)

Many people who retire mid-year have already earned more than their limit allows. Therefore, there is a special regulation in which the profit limit is changed from a yearly limit to a monthly limit. (These monthly limits are 1/12 of the yearly limit.)

This rule allows you to receive a check for each month that the SSA considers you "retired," even if you have already exceeded your annual income limit.

This sounds simple enough, but the interpretation of "retired" as defined by the SSA can cause some confusion. This is what they mean by this term:

You are retired when your monthly income is 1/12 of the annual limit ($1,770 by 2023) or less and you have not performed any significant self-employment service.

Basically, you are considered a pensioner unless you earn more than the income limit. The full retirement age rule also applies when working with the monthly cap. This calendar year 2023, the limit is $4,710 (1/12 of $56,520).

It is very important to remember that in the year after this first year, the monthly limit will no longer be used and the earning limit will only be based on your annual earning limit.

How the income limit is applied

The most confusing part of the income-based benefit reduction is how it is reflected in your monthly benefit payments. Instead of withdrawing a little each month, the SSA keeps several months of benefits at a time.

If you predict in advance that you will have excess income and report it to the Social Security Administration, you may not receive benefits for a few months.prior toIn fact, you earn excess projected income.

For example, if your Social Security payment is $1,667 per month and you expect to receive $31,240 in wages from your job, the administration estimates that you will exceed your earnings limit by $10,000 and therefore $5,000 in benefits must be paid. Therefore, they would withhold your benefit payment from January through March. In April his checks would resume.

If you do not report excess income before it is earned, you must report that information after it is earned. You can do this when you file your tax return, but the preferred method is to be proactive and call your local Social Security office.

If you expect the Social Security Administration to learn of your excess income through your tax return, there may be a significant gap between the time you earn the excess income and the time your benefits are withheld. In most cases, it is best to report excess income quickly so that benefit reduction occurs closer to the time you actually earn that additional income.

Whether your benefits are withheld earlier or later, benefit withholding can make budgeting and planning difficult, especially if you don't understand the system. It may be necessary to establish a separate savings account to set aside some of this income for future pension withholding.

What income counts as income?

The Social Security income limit only applies to gross wages and net earnings from self-employment. All other income is excluded, including pensions, interest, annuities, IRA distributions, and capital gains.

The term "salary" refers to your gross salary. This is the money you earn before any deductions, including taxes, pension contributions, or any other deductions.

For a more detailed discussion of what counts as income toward the income limit, please read my article onSocial Security Income Limit: What Counts as Income?

What to do if your benefits are already being withheld?

If you are subject to the Social Security income limit, don't wait for SSA to start reducing the benefit you receive. Instead, I would recommend discontinuing benefits voluntarily.

If you wait for the Social Security Administration to determine that you made a lot of money working while receiving benefits, your risk ofoverpayment noticeis greater than.

In either case, you will not lose any payments that you will never get back. The amount of your pension will be recalculated when you reach full retirement age (or when you stop working) to reflect the months in which your pensions have been withheld.

The best way to avoid an earnings cap is to wait until full retirement age to claim benefits. If you can't wait, make sure you understand exactly how the job will affect your Social Security benefits.

If you still have questions, you can leave a comment below, but what could be more helpful is to join mine.FREE Facebook Members Group🇧🇷 It's very active and has some really smart people who will be happy to answer all your Social Security questions. I also stop from time to time to add to my thoughts.

You should also consider joining the nearly 400,000 subscribers to my.Channel from Youtube🇧🇷 For visual learners (like most of us), here I break down the complex rules and help you figure out how to use them to your advantage.

One last thing you can't miss: get your FREE copy of mySocial Security Fact Sheet.This handy guide takes all the important rules from the huge Social Security website and condenses them into just1Side.