Norm Haug RSSA Staff
Did you know that returning to work after Full Retirement Age could increase your Social Security benefits? But beware of tax considerations.
Returning to work after reaching full retirement age can have financial implications, including potential adjustments to your Social Security benefits.
When you reach your full retirement age, which varies based on your birth year, you can work and earn without any reduction in your Social Security benefits. In fact, continuing to work after full retirement age can potentially lead to an increase in your monthly benefit amount. This adjustment is made through a process called “re-computation” and involves a review of your earnings record by the Social Security Administration (SSA).
The SSA conducts an annual review of your earnings record, typically after the tax year ends and they receive your earnings information from the IRS. If your earnings in any year following your full retirement age are higher than one of the 35 years previously used to calculate your benefits, the SSA recalculates your benefit amount. They replace the lower-earning years in the original calculation with the higher-earning years, potentially resulting in an increased monthly benefit amount. The SSA will notify you of any adjustments made to your benefit amount through an annual notice.
It’s important to note that the impact on your benefit amount will vary based on your individual earnings history and the specific rules in effect at the time you claim Social Security benefits.
While returning to work after full retirement age can potentially increase your Social Security benefits, it’s crucial to consider the tax implications. The IRS may tax a portion of your Social Security benefits if your combined income exceeds certain thresholds.
It is essential to note that state taxation of Social Security benefits varies. Some states do not tax Social Security benefits at all, while others have their own rules and thresholds. Consult your state’s tax authority or a tax professional to determine the specific tax implications in your state.
Furthermore, if you work while receiving Social Security benefits before reaching full retirement age and you earn above the $21,240 (in 2023) income threshold, your benefits may be subject to earnings deductions. However, once you reach full retirement age, there is no longer an earnings limit, and your benefits are not reduced due to earned income.
Returning to work after full retirement age can have an impact on your Social Security benefits and tax obligations. By understanding the adjustment process for benefits and the tax implications, you can make informed decisions about your retirement plans. By working with an RSSA, you can make informed decisions about your retirement strategy, ensuring that you maximize the benefits available to you based on your unique work history and circumstances.
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