9149 / What should taxpayers who continue to work during retirement consider with respect to Social Security planning? Are Social Security benefits taxed?

Generally, an individual can begin to collect Social Security benefits even while he or she continues to work and earn income. However, a portion of that benefit will be subject to tax rules that differ from the otherwise applicable tax rates. In 2024, if an individual is younger than full retirement age, collects Social Security early and earns more than $22,320, his or her Social Security benefit will be reduced by $1 for every $2 that he or she earns over that limit. This earnings limit is applied on a calendar year basis (January-December), rather than based on the individual client’s birthday. The limit is also indexed annually for inflation (the amount for 2023 was $21,240).

During the year in which the individual reaches full retirement age, the lower $22,320 amount is increased to $59,250 in the months prior to the month in which the individual actually reaches full retirement age. Further, during those months, his or her Social Security benefits are only reduced by $1 for every $3 that is earned above the $59,250 limit. For example, if the individual reaches full retirement age in September, his or her benefit will be reduced during the months of January through August, assuming his or her earned income exceeds $59,250.

Once the individual reaches full retirement age, his or her benefit is no longer reduced regardless of earned income.