Social Security earnings limit penalty - permanent reduction or temporary withholding at 63?

Good news! The reduction is temporary. It's a withholding, not a permanent reduction. Social Security will withhold some of your benefits if you exceed the earnings limit, but when you reach your full retirement age (67), they'll recalculate your benefit and give you credit for the months when benefits were withheld. This is different from the permanent reduction you already accepted by claiming at 62 instead of waiting until FRA. That reduction (about 30%) is permanent, but the earnings test withholding is not. The 2025 earnings limit for someone your age is $22,320, and yes, they withhold $1 for every $2 you earn above that limit. So if you earn $24,320 (which is $2,000 over), they'd withhold $1,000 from your annual benefits.

my neighbor went thru this exact thing. SSA took back money when he made too much but he said when he hit full retirement age they adjusted it back up. dont worry its just temporary!

The previous responses are correct, but I'd like to add some important details from my experience as a financial advisor who specializes in retirement planning: 1. The earnings limit for 2025 is indeed $22,320 for those under FRA for the entire year. 2. The withholding is based on your NET self-employment income, not gross revenue. This is important for your business planning. 3. If you expect a significant withholding, you can contact SSA proactively to have your benefits reduced/suspended to avoid an overpayment notice later. 4. At FRA, SSA will automatically adjust your benefit upward to account for months benefits were completely withheld. 5. If you're close to FRA, note that the year you reach FRA has a much higher earnings limit (over $59,000 for 2025) and they only deduct $1 for every $3 over the limit. Keep good records of your self-employment income to accurately report to SSA.

I had a similar situation when I was 63. The benefits reduction is TEMPORARY. It's basically SSA's way of enforcing what they consider "retirement." However, I want to add something important - you need to be very careful about how you report earnings from self-employment. The earnings test applies to NET self-employment income, but there are specific rules about how they calculate this. It's not exactly the same as your tax return. I tried calling SSA about this for weeks and kept hitting brick walls - busy signals, disconnections, etc. Finally I found this service called Claimyr (claimyr.com) that got me through to an agent in about 20 minutes. They have a video that shows how it works: https://youtu.be/Z-BRbJw3puU The agent I spoke with explained exactly how they calculate self-employment income for the earnings test and how to report it correctly. Saved me a ton of headaches.

I just went through this exact situation! I'm 64 and started SS at 62, then my consulting work picked up way more than expected. Here's what happened: 1. I earned about $27,000 net from self-employment (about $4,680 over the limit in 2024) 2. SSA withheld around $2,340 from my benefits ($1 for every $2 over) 3. They withheld my entire monthly benefit for a couple of months until they collected the $2,340 I called SSA to understand the impact and they confirmed this is only temporary. When I reach my FRA of 67, they'll increase my monthly benefit to account for the months they withheld completely. My advice - if you're going to earn significantly more, call SSA ahead of time so they can adjust your payments proactively rather than hitting you with an overpayment notice later. That's what almost happened to me and it was stressful!

Be VERY CAREFUL about this!!! My husband had his benefits reduced because of working and he NEVER got the money back! The SSA people kept telling him different things every time he called. Some said he'd get it back at FRA and others said he wouldn't. It's been 3 years since he hit his full retirement age and they never adjusted anything! The whole system is designed to confuse people and keep YOUR MONEY!!!

im confused about something... does this rule apply if im on disability not retirement? im 61 on ssdi and thinking about trying some part time work

at 63 ur not at full retirement age so they take back money if u work too much. my sister just went thru this she had to pay back like $3200 when she made too much at her job. but when she turn 66 and 8 months (her fra) they adjusted her benefit up a little bit to make up for it

Thanks everyone for the helpful information! This cleared up a lot of my confusion. I'm going to call SSA to let them know about my expected earnings so they can adjust my benefits proactively rather than hit me with a surprise later. I'll make sure to emphasize that I'm talking about net self-employment income after expenses, not gross revenue. It's a relief to know this is just a temporary withholding and not another permanent reduction on top of the early claiming reduction I already took. Makes my decision about taking on more work much easier!

Great advice from everyone here! I went through something similar when I was 64. One thing I'd add - when you call SSA to report your expected earnings, ask them to put you on "voluntary suspension" if your projected overage is significant. This way instead of them withholding sporadically throughout the year (which can mess with your monthly budget), you can choose to have them suspend benefits for specific months when you know your income will be highest. Then restart them when your business slows down. Also, keep detailed records of ALL your business expenses because they DO matter for the net income calculation. Things like equipment purchases, office supplies, travel costs, etc. can really add up and reduce your net self-employment income for SSA purposes. The recalculation at FRA is real - I saw my monthly benefit increase by about $47/month once I hit my full retirement age to account for the 4 months they had completely withheld benefits when I was 64. Not a huge amount but definitely helped!

I'm glad this thread has been so helpful! As someone who went through this exact situation at 63, I wanted to add a few more practical tips: 1. **Timing matters for self-employment income** - SSA counts the income when you actually receive it, not when you earn it. So if you invoice in December but get paid in January, that counts toward the next year's earnings limit. 2. **Quarterly estimated taxes can help you track** - If you're paying quarterly estimates for your business income, those calculations can give you a good running total of your net self-employment income throughout the year. 3. **The SSA-7011 form** - If you do end up with significant earnings over the limit, SSA may send you this form to report your annual earnings. It's much easier to complete if you've been tracking your net income monthly. 4. **Don't forget about the "grace year"** - In your first year of retirement (which was last year for you), there's a monthly earnings test instead of the annual test. But since you're in your second year now, you're subject to the annual limit. The peace of mind knowing this is temporary and not permanent is huge. I was losing sleep over it until I got clarity from SSA directly!