How does Social Security calculate earnings limit for retirement benefits? W2 confusion

The earnings limit is based on your gross wages before ANY deductions - even pre-tax ones like 401k contributions, health insurance, etc. It's essentially the amount you earned before anything is taken out. So yes, all those pre-tax deductions are still counted toward the earnings limit. The SSA primarily looks at Box 3 (Social Security wages) on your W2, but they can also use Box 5 (Medicare wages) if applicable. Self-employment earnings count too, but that's a whole other calculation.

THIS IS SO FRUSTRATING! I went through the EXACT same thing last year and ended up having to repay $4,600 because I went over the limit! My financial advisor told me my 401k contributions wouldn't count toward the limit (WRONG!!) and I found out the hard way. The SSA doesn't care about your tax situation - they look at your TOTAL EARNINGS before ANY deductions. It's ridiculous because you're trying to be responsible by saving for retirement and they PENALIZE you for it!

I thought it was just Box 1 on the W2 (the federal income tax wages) that counted, which would exclude 401k contributions. Now I'm confused too.

I had a nightmare trying to get through to Social Security to ask this exact question when I started collecting at 62. Kept getting busy signals and disconnected after waiting for hours. Finally used this service called Claimyr (claimyr.com) that got me connected to an SSA agent in about 20 minutes instead of spending days trying. The agent confirmed that all earnings count toward the limit before any deductions - even tax-advantaged ones. They have a video showing how it works here: https://youtu.be/Z-BRbJw3puU - saved me so much frustration.

Another thing to watch out for - if you receive any bonuses, severance pay, vacation pay, or sick leave payments, those ALL count toward the earnings limit too! I found that out when I retired mid-year and got paid out for my unused vacation time. Pushed me over the limit and I had no idea until SSA sent me a notice.

So how does the ss administrations even know how much I'm making each month? Do they check with my employer or something?

This whole system seems unnecessarily complicated. So if I'm understanding correctly: 1) Pre-tax deductions don't reduce what counts toward the earnings limit, 2) I need to look at Box 3 on my W2 to know what SSA counts, and 3) If I unexpectedly go over the limit, they'll want money back or reduce future payments. Is there any grace period or warning they give you?

To provide a bit more clarity: For the earnings test, SSA counts your gross wages and net self-employment income earned during the year. The earnings limit applies regardless of whether the money is earned in one month or spread throughout the year. However, there is a monthly grace period in the first year you retire. If you earn less than the monthly limit ($1,860 in 2025) in any given month, you'll receive your full benefit for that month, regardless of your annual earnings. This only applies in the first year you claim benefits.

To address your earlier question about reporting: Yes, you should report any changes in your expected earnings to SSA proactively. While they do eventually get the information from tax records, that happens much later and could result in an unexpected overpayment notice. You can report changes by calling SSA directly or by visiting your local office. If you expect to exceed the limit, it's better to let them know as soon as possible so they can adjust your benefits accordingly rather than creating an overpayment situation.