How Social Security Withholds Benefits for Earnings Over the Limit

We have a client who is still working but thinking about beginning S.S. next year. Will be below FRA making $24,000 annually. Assuming the limit is $22,000 at that time, will SSA withhold $1,000 of her SS benefit? Mechanically how does that work? Do they withhold all at once or over the year? How/when does it start to get credited back once they stop exceeding (if that is still how it works?).

 If your client decides to begin Social Security benefits next year while still working and earning $24,000 annually—just below Full Retirement Age (FRA)—they will be subject to the earnings limit imposed by the Social Security Administration (SSA). Assuming the earnings limit is $22,000 at that time, SSA will withhold $1 of benefits for every $2 earned over the limit.

Here’s how the process works:

1. Initial Withholding:

   • When your client files for benefits, SSA will ask for an estimate of their annual earnings. Since they are projected to earn $2,000 over the limit, SSA will calculate that $1,000 of benefits needs to be withheld ($2,000 excess earnings ÷ 2 = $1,000). SSA typically withholds this amount by holding back full benefit checks until the required amount is met. For example, if your client’s monthly benefit is $1,500, SSA might withhold the entire first check and part of the second.

2. Year-End Adjustment:

   • At the end of the year, if your client’s actual earnings differ from the estimate, SSA will adjust the withholding. If your client earns less than expected, SSA may owe them some benefits back, which would be paid out as a lump sum or in future benefit checks. Conversely, if they earn more, SSA will withhold additional benefits.

3. Credit for Withheld Benefits:

   • Once your client reaches FRA, SSA will adjust their benefit to credit them for any months they did not receive a full payment due to the earnings limit. This adjustment will slightly increase their monthly benefit moving forward.

This process ensures that clients who work and receive Social Security benefits before reaching FRA are fairly compensated for any withheld benefits once they fully retire or reach FRA.

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