The two limits
The test uses one limit for people under full retirement age all year and a higher one for the year full retirement age is reached.
| Period | Annual limit | Monthly limit | Withholding |
|---|---|---|---|
| Under FRA all year | $25,560 | $2,130 | $1 per $2 over |
| Year FRA is reached | $67,920 | $5,660 | $1 per $3 over |
| After FRA | None | None | None |
The monthly figures are not a separate allowance. They define the month-by-month test used in the first year of retirement; in later years the annual figure governs.
The first-year exception. If earnings in a given month are at or below $2,130, a benefit can be paid for that month even when the annual total exceeds $25,560. The rule exists for people who stop work partway through the year and would otherwise lose benefits for months in which they did not work at all.
What counts as earnings
Only work income counts. Wages reported on a W-2 count in full, and net self-employment earnings count after business expenses. Everything else is outside the test: investment income, interest, dividends, capital gains, pensions, annuities, IRA withdrawals, and other government benefits.
This distinction is the source of most confusion. A retiree with a large portfolio and no paychecks can collect the full benefit at 62. A retiree with a modest part-time job can lose part of it.
How withholding actually works
SSA does not reduce each monthly check proportionally. It withholds entire monthly payments until the required amount is recovered. Someone expecting a small reduction may see one or two checks disappear instead.
That has two consequences. The annual total is what matters, so a mid-year estimate is provisional and SSA reconciles it when the tax return or a report of earnings arrives. And over-withholding is corrected through the same mechanism that removes the reduction at full retirement age.
Why the withheld amount comes back
The earnings test reduces the benefit before full retirement age; it does not erase the entitlement. At full retirement age, SSA recalculates the benefit as if those months had never been claimed, which restores the actuarial reduction for that period. A person who lost a year of checks at 63 receives a higher monthly amount from 67 onward.
This is why the test is best understood as a deferral. The money is not forfeited; the payment schedule is rebuilt.
After full retirement age the test ends entirely. Earnings then affect only the taxability of benefits, not eligibility. Withholding stops, but the benefit remains reportable: SSA issues Form SSA-1099 each January, and the taxable share is determined by provisional income rather than by the earnings that would previously have triggered withholding.