The social security Grace Year comes into play prior to your social security full retirement age year and starts at age 62 (not including a widow). There is a social security earnings test when drawing social security and working simultaneously. In 2024, from 62 prior to your social security full retirement age, the maximum income you can make is $22,360 per year, however during the Grace Year, your first year of drawing social security, it is a monthly income earnings test that is 1/12 of $21,240 = $1770 per month. Here’s an example: Sam retires at age 65 in July and plans to draw social security during that month. He’s allowed to make as much income as he wants in the calendar year when he turns 65 prior to drawing social security, months January to June, during that same calendar year.
Sam then has a monthly maximum of $1863.33 per month he can make from July to December of that same calendar when he turns 65 years of age while drawing social security. So, for that first year, the annual maximum income for that year is not $22,360. It’s no more than $1863.33 per month. If Sam goes over that amount in any month from July to December, he will experience a social security overpayment, meaning he will have to give back his entire social security benefit for each month he exceeds the $1770. Not only that, if there are others in his family who are drawing social security benefits tied to his benefits, they too can be adversely affected.
Even if you go over the social security earnings limit by one dollar, you have to return the entire month of social security benefits, there’s no proration.
The second calendar year of drawing social security prior to full retirement age and simultaneously being employed, becomes an annual earnings test, which again as of 2024 is $22,360 which gets adjusted each year, no longer monthly. If you go over the annual earnings limit you will lose $1 for every $2 over the limit in benefits. You will see it deducted from your upcoming benefit until the total overage is satisfied.
Once you reach the calendar year of your social security full retirement age, the earnings test goes to $59,520 (as of 2024, it goes up a little bit each year) as an annual earnings limit.
The following calendar year after you have reached your social security full retirement age, there is no more earnings test, you can collect the full amount of social security and earn unlimited income.
It’s important to note that the earnings test is an individual test. For a married couple claiming their own social security benefit and both working simultaneously, it is not a joint earnings test limit, it is individual test for each spouse.
Kevin Walton is an RSSA in Ventura County California, and serves people nationwide who need help with social security benefits.
If you have any questions, feel free to call, email or fill in a few fields on the form below, and I will get back to you ASAP.
Best,
KW