Does it Matter If You Earn Money After You Sign Up for Social Security Retirement Benefits?
- Social Security calculates full retirement age based on birth date. Individuals born from 1943 to 1954 reach full retirement age at 66; those born from 1955 to 1959 reach full retirement age between 66 and 67. Individuals born after 1959 reach full retirement age at 67, under the laws in effect in 2011. Full retirement age determines whether a Social Security recipient incurs penalties for earned income.
- Social Security retirement benefits taken prior to full retirement age may incur penalties when combined with earned income. An early retiree can earn $14,160 with no penalties in 2011. For each $2 earned in excess of $14,160, Social Security charges $1 in penalty for early retirees. Social Security withholds retirement checks until it accumulates the total penalty payment.
- Penalty rules change the year of full retirement age,. You can earn $37,680 the year of full retirement age before incurring a penalty. The penalty for earned income in excess of $37,680 is $1 for every $3. The month you reach full retirement age, all Social Security penalties cease. You still pay Social Security and Medicare taxes on your earned income even after you reach full retirement age. You may pay federal income taxes on up to 85 percent of your Social Security benefits even after you reach full retirement age. The Internal Revenue Service calculates combined income for taxing Social Security. Combined income is your adjusted gross income and half of your annual Social Security benefits, along with any nontaxable interest you receive for the year. Combined income in excess of $25,000 may incur taxation of Social Security benefits.
- Social Security requests notification if your income changes and you anticipate a penalty. If you notify Social Security of your projected earned income, it will withhold the checks during the year while you are earning the higher income. If you do not notify Social Security, it withholds checks when the Internal Revenue reports your earned income. This may be after your high-income months, and make the penalty seem more severe. When you reach full retirement age, Social Security recalculates your benefits to include the penalty months, which may give you a slightly higher monthly check.