Social Security Earnings Test for Federal
Employees
As you plan for federal retirement, the
Social Security Earnings Test is important to consider. Many federal employees
retire before they reach their full retirement age (FRA) for Social Security
and work in the private sector to supplement retirement income. This could
potentially cause a reduction or loss of Social Security benefits due to the
Earnings Test. Social Security states that those who have earned at least 40
credits may be eligible for benefits. But before deciding to work after
retirement, it’s essential to determine if you may be subject to the Social
Security Earnings Test.
How the Earnings Test Works
The Retirement Earnings Test applies only
to those under the FRA. Social Security withholds benefits if your
earnings surpass a certain level or Retirement Earnings Test exempt
amount and if you are also below your FRA. One of two exempt amounts applies. This is a
lower amount in years before the year you attain FRA and a higher amount in the
year you attain FRA. These exempt amounts commonly increase annually with bumps
in the national average wage index.
Earnings
Test Limits
If you draw Social Security before
reaching FRA, you will be subject to the annual Earnings Test Limit of $18,960,
according to the Social Security Earnings Test Limit for 2021. For every $2 of
earned income over the earnings test limit, Social Security will withhold $1 of
the retiree’s benefit. In the year you reach FRA, the annual limit increases to
$50,520 and $1 will be withheld for every $3 over this higher limit. The
Earnings Test disappears completely once you reach FRA.
Earned
Income
Only earned income is considered for the
Social Security Earnings Test Limit. Earned income, or the sum of payment for services as an
employee, is calculated by adding all net earnings from self-employment and by
subtracting any net loss from self-employment that year. This does not include
your pension, TSP, IRA, or Roth IRA
withdrawals for that year.
At Federal Educators, we can help you
better navigate complex social security and retirement benefits. Give us a call
and request your free analysis at (866) 226-8160.
