If you’re concerned about inflation and considering going back to work after retirement to cope with rising prices, there are a few important rules to know. These rules can affect your continued entitlement to Social Security benefits, as well as the amount of your checks you are allowed to keep.
Here are the rules.
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1. You can lose benefits if you work too much
While you may assume that returning to work will bring you a lot of extra cash, the reality is that you could end up losing some of your Social Security income. Earning too much can lead to temporary loss of your benefits.
The rules for working while receiving Social Security retirement income vary depending on how old you are. If you have already reached your full retirement age (FRA), don’t worry about this because retirees who are past FRA have no restrictions on what they can earn while still receiving their full payments. Your FRA is between 66 and four months and 67 if your year of birth is 1956 or later.
However, if you are under your FRA, there is an earning cap. And if you exceed this, the benefit will be withheld. If you reach FRA at any point in the year, you can earn up to $51,960 if you work before reaching that milestone. Once your earnings exceed this amount, you will lose $1 for every additional $3 you earn.
But if you don’t reach FRA at all during the year, the rules are much stricter. Once your earnings exceed $19,560 in 2022, you will lose $1 in benefits for every additional $2 you earn. Full checks are withheld to account for the benefit income you lose, so you can’t easily take the double plunge and get money from both your job and Social Security.
When you reach full retirement age, benefits are recalculated and you get credit for missed checks, so your monthly income rises later. But if you’re back to work because your money isn’t going far enough in this time of high inflation, bigger future controls won’t help you right now.
2. Earning a Higher Income Can Lead to More Social Security Taxes
You should also be aware that your choice to return to work could result in you losing some of your Social Security benefits in taxes.
Retirees can keep all of their retirement benefits without paying federal tax if their countable income is less than $25,000 as a single tax return or less than $32,000 as a married joint tax return. Countable income includes half of Social Security benefits, all taxable income, and a portion of non-taxable income. But once you’re above these limits, up to 85% of the benefits can be taxed, with the specific amount being based on how much your earnings are. The taxes are being phased in, but this is still a huge blow if you end up going above these thresholds due to going back to work.
These tax rules apply regardless of your age. And if you live in one of the 12 states that tax Social Security benefits, you may also have to deal with taxes at the local level. Before returning to work, make sure you know the rules so you can prepare for a higher tax bill if this happens to you.