Before Working in Retirement, Know These 2026 Social Security Limits
For retirees living on a fixed income, every dollar counts. Therefore, knowing the ins and outs of Social Security taxation can help keep more money in your wallet.
Depending on how much money you earn from work, retirement accounts, investments and other sources, you may have to pay federal taxes on a portion of your benefits. Here's what retirees need to know about earning money while collecting Social Security and how taxes could affect their benefits, according to experts.
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The Social Security Earnings Test
Many Americans collect Social Security while still working, but doing so can come with an important catch, which is why understanding the Retirement Earnings Test is vital. If you're below your full retirement age (FRA) and claim early, the Social Security Administration applies a test that can temporarily reduce or withhold a portion of your benefits if your income exceeds certain limits.
According to Peter Diamond, a federally licensed tax, accounting and real estate professional and certified bankability expert, here's what to pay attention to:
In 2026, if you're under FRA for the entire year, you can earn up to $24,480 before benefits begin to be withheld.
The SSA withholds $1 of benefits for every $2 earned above that amount.
In the year you reach FRA, the limit increases to $65,160, and only $1 is withheld for every $3 above the limit until you reach your FRA.
After that, there is no earnings limit.
What Income Counts Toward the Earnings Test
One key detail many retirees overlook is that the Social Security earnings test applies only to certain types of income. That distinction can make a big difference in whether benefits are reduced while you're still working.
“[It's important to note] that the earnings test applies to wages or self-employment income,” said Eric Mangold, CWS and founder of Argosy Wealth Management. “It doesn’t apply to investment returns,” he added.
To find out what your FRA is, Mangold suggested logging on to the government’s Social Security website at www.SSA.gov. From there, you can create your free account and check your benefits, as well.
Don't Confuse Benefit Withholding With Taxes
Many retirees assume that having Social Security benefits withheld under the earnings test is the same as paying taxes on those benefits. In reality, these are two separate rules administered by different government agencies.
“The earnings test is the Social Security Administration temporarily withholding benefits because your wages exceed the annual limit before [FRA],” Diamond explained. “Federal income tax is determined by the IRS based on your taxable income. One affects the timing of your Social Security checks, while the other determines whether you owe income tax.”
How Working Can Increase Taxes on Your Benefits
You can absolutely work while collecting Social Security, but earning an income affects benefits through the earnings test. It can also increase the amount of your benefits that are subject to federal income tax.
“Your wages increase your overall income, which can cause a larger portion of your Social Security benefits to become taxable under the IRS combined income calculation,” Diamond said. “After determining how much of your Social Security is taxable, you then apply your deductions — including the standard deduction — to determine your final federal tax liability.”
How To Plan Ahead
Nobody wants to get hit with a big bill at tax time, so knowing your overall income numbers before you claim is important, said Diamond. After estimating every source of income, you can estimate your federal and state tax liability, if applicable.
“That allows you to adjust your withholding or make estimated tax payments ahead of time instead of getting surprised with a tax bill after you've already spent the money and potentially being subjected to unwanted penalties,” Diamond explained.
Understanding the difference between the earnings test and IRS tax rules can help retirees make informed decisions about working in retirement and avoid unexpected reductions to their benefits or tax surprises.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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