Employees Born Between April 2,1959 and January 1,1965 and Receiving Social Security Benefits Should Be Aware of the Earnings Test

Social Security benefits are designed to replace a portion of the earnings an individual (and in some cases , the individual’s family) loses because of the individual’s retirement, disability, or death. The implication of this loss  is that the amount of Social Security received each year will depend on whether the individual is fully or partially retired.

The Social Security Administration (SSA) uses what is called the “earnings” test (also referred to as the “retirement” test) to: (1) Measure the extent of an individual’s retirement; (2) Determine the amount to be deducted from the individual’s Social Security monthly retirement benefit; and (3) Measure the work activity of family members entitled to family benefits based on the individual’s Social Security earnings record and the amount of benefits payable to them.

The “earnings” test does not apply to an individual who has reached “full retirement age” (FRA).  FRA is between age 65 and 67 and depends on an individual’s year of birth. Table 1 presents FRA  according to year of birth. Note that the Social Security Administration (SSA) considers an individual to be “of age” as of the day before the individual’s birthday. For example, if an individual’s birthday is April 2, then the individual is “of age” as of April 1.

                          Table 1. Full Retirement Age (FRA) As Determined by Year of Birth.

Also to be noted from Table 1: (1) Any individual born before April 2,1959 will have reached FRA as of January 1, 2026; (2) Any individual born between April 2,1959 and January 1,1960 (FRA of 66 years and 10 months) will reach their FRA sometime during 2026.  Because an individual can start receiving monthly retirement benefit as early as age 62, any individual born during 1964 is eligible to start receiving his or her monthly retirement benefit during 2026. Individuals who start receiving their monthly Social Security retirement benefits before reaching their FRA will have monthly benefits permanently reduced. The maximum reduction is 30 percent for individuals born after December 31,1959 who start receiving their monthly benefits at 62. The closer to FRA an individual is when he or she starts receiving their monthly benefit, the less reduction.  Another potential reduction to monthly benefits occurs when a Social Security recipient is younger than FRA and has “earned income” (salary, or self-employed with net self-employment income). These individuals’ monthly benefit is potentially subject to the Social Security “earnings” test.

Reporting Earnings

Social Security earnings (an individual’s salary in which FICA taxes are withheld) directly affect the amount of an individual’s future Social Security retirement benefits. An individual’s Social Security earnings each year are shown in Box 3 of the employee’s W-2 form (“Social Security wages”) and sent to the SSA by the employee’s employer each January.  The SSA computes every year an individual’s future retirement benefits based on the individual’s 35 highest years of Social Security earnings. The larger the individual’s lifetime Social Security earnings, the larger the individual’s future retirement benefits will be.

The SSA obtains information about an individual’s Social Security earnings each year when a copy of the individual’s W2 is sent to the SSA. For self-employed individuals, self-employment income is reported on an individual’s federal income tax return (Schedule SE) and IRS sends a copy of Schedule SE to the SSA.

What Are “Excess” Earnings for Social Security Purposes?

If an individual is between age 62 and the year in which the individual becomes FRA, “excess” earnings are 50 percent of the Social Security earnings in excess of the “exempt” amount. Each year, the SSA announces the “exempt” amount. During 2026, the “exempt” amount for working individuals younger than the year they reach FRA and receiving Social Security benefits is $24,480. The SSA “earnings“ test applied during 2026 to working individuals between age 62 and the year/month they become FRA and receiving Social Security retirement benefits is: For every $2 the individual earns above $24,480 during 2026 ($2,040 per month), the SSA will take back $1 of the individual’s Social Security retirement benefit.

The following example illustrates:

Example 1. Sarah, age 63, is a federal employee working part time and earning $30,000 during 2026. She is also receiving Social Security benefits of $14,000 during 2026. Sarah’s “excess” earnings during 2026 are equal to $30,000 less $24,480 equals $5,520. 50 percent of $5,520 equals $2,760. This means that Sarah will lose $2,760 of the $14,000 Social Security benefits she receives during 2026.

In the year FRA is reached, “excess” earnings are equal to 33 1/3 percent of the Social Security earnings in excess of the “exempt” amount. During 2026, individuals born between April 2,1959 and January 1,1960 reach their FRA. FRA for these individuals is 66 years and 10 months. Their exempt amount is $65,160. For every $3 these individuals’ salary they earn above $65,160 between January 1,2026 and the month they reach FRA, they will lose $1 of their benefits. The following example illustrates: