Q: I recently received a notice from Social Security that says I’ve been overpaid because I earned more than the allowable amount. I started benefits at age 62 after losing my job. I finally found a new one and I’ve been working for the past two years. I’m now 65. When I first tried to report my earnings at our local Social Security office, I was told that the Social Security Administration would let me know what would be taken out of my benefits. The notice I received says I was overpaid by more than $5,000! Now it looks like I won’t get any Social Security payment for months.
A: When you start retirement benefits before your full retirement age– which for you is 66 — you may work, but Social Security will withhold one dollar in benefits for every $2 in earnings above the limit. The question for many people who go this route is when the withholding starts.
In 2019 you are allowed to earn $17,640, or $1,470 per month. If, for example, you were to earn $30,000 this year then you would have $6,180 withheld from your Social Security benefits. Your earnings would be $12,360 in excess of $17,640. Half of that is $6,180. The Social Security Administration collects this by withholding your monthly Social Security payments until it collects the $6,180. Let’s say you get a retirement benefit of $1,000, that could mean Social Security would withhold your entire Social Security benefit for the next seven months. Once the $6,180 is collected the difference will be sent later.
As you have learned, there’s a long lag time between the year you earned the money and when you get the notice from Social Security. Social Security makes the adjustments based on your W2s and tax returns. Making matters worse, the earnings limit is adjusted annually and was even lower in prior years. In 2018 the limit was $17,040 and in 2017, $16,920. In addition, the notice you received would likely only pertain to one year of earnings, and you possibly could receive a similar notice next year and go through the process of withheld benefits all over again.
Since you are still working and still under your full retirement age, you might consider reporting your estimated income to Social Security for 2019, and possibly for the months prior to turning your full retirement age next year. However, that would mean that your Social Security benefits would be withheld for even more months, and you might not receive any Social Security benefits at all in 2019. At the end of the year, you would have to notify Social Security of what you actually earned for 2019, and the calculation would be revised. If too much was withheld, you would get a refund. If not enough was withheld, you would have to pay the difference. Once you turn your full retirement age then, you will be able to earn as much as you want, and not be subject to Social Security earnings restriction rules for new earnings after turning age 66.
The money that is withheld due to excess earnings is not completely lost. Once you reach full retirement age, the Social Security Administration will recalculate your benefits so that over time you can recover what was withheld. To learn more about getting Social Security benefits while working, visit: https://www.ssa.gov/planners/retire/whileworking.html.