What is Social Security’s 'special earnings limit rule'?

The special earnings limit rule is an exception to Social Security’s earnings limit — the cap on the amount you can make from work in a year without Social Security reducing your benefits. The cap only applies if you are under full retirement age, which is 66 and 6 months for people born in 1957, two months later for those born in 1958 and gradually increasing to 67 over the next few years. The special rule generally applies in the calendar year in which you start receiving Social Security.

The reason for the rule is that Social Security bases the earnings limit on a full year’s income, but it recognizes that most people retire at some point mid-year and by then may have already earned more than the limit. Rather than count that income and reduce your benefits accordingly, Social Security applies a “monthly earnings test”: Once you claim your benefits, you’ll get your full payment for any month that Social Security considers you to be “retired” (doing limited or no paid work), regardless of your total earnings for the year.

Here’s how it works.

In 2024, the earnings limit for early claimants is $22,320. (The figure is adjusted annually based on national changes in average wages.) You lose $1 in benefits for every $2 in earnings above that amount. If you are on Social Security for the whole year and make $30,000 from work, you are $7,680 over the limit and lose $3,840 in benefits.

But suppose you earn that $30,000 from January to September 2024, then start Social Security in October. For the rest of the year, Social Security will consider you retired for any month in which you earn no more than $1,860 (one-twelfth of $22,320) and do not perform what Social Security deems “substantial services” in self-employment.

In October, November and December, Social Security will pay your full retirement benefit unless you exceed the monthly cap. Say you do so in November; Social Security would apply the $1-for-$2 withholding and count your income for the year, including the $30,000 you made before. That means you would not receive a benefit payment for November. (If you stay under the monthly limit in October and December, you’ll receive your full amount; the special rule switches on and off on a monthly basis.)

The earnings limit is less stringent in the year in which you reach full retirement age — it's $59,520, with $1 in benefits lost for each $3 in income above the cap. The monthly earnings test still applies: If you reach full retirement age in 2024, Social Security will consider you retired for any month that your earnings do not exceed $4,960 (one-twelfth of $59,520) and you do not perform substantial services in self-employment.

Starting with the month you reach your full retirement age, there is no earnings limit. Your work income has no effect on the amount of your benefits.

Keep in mind

• Social Security can only use the special monthly rule in one calendar year. Starting the next year, income-related deductions from benefits are based solely on your annual earnings.

• Once you reach full retirement age, Social Security recalculates your benefit amount so that, over time, you can recoup the money withheld previously.