Why Is The Government Withholding More Of My Social Security Benefits, Just Before Retirement?

Social Security is a far more complex program than people traditionally think. There is so much more involved in administering the United States’ largest budget expense than just writing checks to tens of millions of retired Americans who have already contributed to the system through their taxes. 

The reality with Social Security is that you can claim benefits as early as 62 years of age, but if you are working while receiving benefits, it can and will trigger various withholding rules. As a result, the Social Security Administration uses an “earnings” test to help look at your income and earning limits. 

Unfortunately, far too many retirees are unfamiliar with this test and whatever amount they were expecting in benefits can (and will be) reduced as a result. This is especially true when you are nearing 67 or Full Retirement Age. 

The Social Security Earnings Test

Among the primary reasons you would see any withholding whatsoever with Social Security is the result of what the administration calls the “earnings test”.  The test works like this:

If you were born on or after January 2, 1960, your Full Retirement Age is considered 67. If you hit this age, you will keep all of your benefits, regardless of whether you are working or not. 

However, where things get both confusing and complicated is what happens if you are younger than 67. According to the administration, if you are younger than the full retirement age for 2025, they will deduct $1 from your benefits for every $2 you earn above $23,400. 

Should you hit Full Retirement Age sometime during 2025, the administration will deduct $1 from your benefits for every $3 until you earn above $62,160 until the month of the year you hit 67 (Full Retirement Age). 

Example 1

According to the Social Security guidelines, how the earnings test plays out in real life is actually pretty straightforward. Say you are filing for Social Security benefits at age 62 in January 2025 and are expecting a payment of $600 per month or $7,200 annually. 

This would work because during 2025, you plan to earn $25,000, which would put you $1,600 above the $23,400 limit. The result is that Social Security would withhold $800 of your Social Security benefits ($1 for every $2 earned over the limit). This would result in you not receiving any January or February 2025 checks. As soon as March 2025 hits, you will start receiving your full $600 benefit for the rest of the year, and then, in 2026, they will repay you an additional $400, which was withheld in February 2025. 

Example 2

Alternatively, let’s look at this differently and say that you will not reach full retirement age (67) until November 2025. During that time, you are planning to earn $65,520 over a 10-month period between January and October. 

Over these 10 months, the Social Security Administration would withhold $1,120 ($1 for every $3 earned over the $62,160 limit). This would result in no checks received in both January and February 2025. However, beginning in March 2025, you would start receiving a monthly benefit check of $600 for the rest of the year. There would also be a separate payment of $80 paid back to you in 2026 that was withheld in February 2025. 

Based On Future Earnings

As the second example shows, as part of this earnings test, the Social Security Administration may preemptively withhold benefits based on your future earnings in any given year. However, if your earnings increase or decrease, depending on how the number falls based on the earnings test, you may be entitled to more or less as part of your benefits. 

Unfortunately, this is an imperfect system, and if any estimate of your future earnings results in unnecessary withholdings, you can work with the department to resolve any concerns. 

This would require you to fill out form SSA-561, a “Request for Consideration” form provided by the administration. During this time, you’ll need to fill out this form, providing all necessary information, including the issue being appealed, the reasons you disagree, and your contact information. It’s essential to be as concise and straightforward as possible about why you are making an appeal and what you believe your earnings will be to help ensure the proper amounts are considered. 

You can submit the form in person at a local Social Security Office or mail it to the same location. Alternatively, you can contact the SSA by dialing 800-772-1213. 

The bottom line in this case is that you need to be proactive and not wait too long to resolve any issues related to potential future earnings sooner rather than later. Not only does the Social Security Administration not move all that fast in rectifying these issues, but any delays in paperwork could also mean a delay in benefits, which would be a worst-case scenario. 

How to Avoid Social Security Withholding Concerns

Ultimately, the best case scenario is that you try to avoid any scenario in which you would need to consider delaying your benefits. This might be a good idea until you stop working or reach full retirement age, rendering the need for the earnings test moot and allowing you to withdraw benefits as usual. 

It’s also equally important to monitor your earnings and ensure the Social Security Administration isn’t getting anything wrong. It won’t come as any surprise to learn that the Administration occasionally makes mistakes and that when they do, you have to be your own advocate to resolve any issues. 

The most important thing may very well be having a deep understanding of the earnings test, why it occurs, and what it could mean for your benefits. The Social Security Administration isn’t just randomly withholding money, but they are doing so based on federal guidelines and while this might be frustrating if you were expecting full benefits, it’s also a necessity to keep the program going and make sure all beneficiaries are receiving their care.

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