Social Security is a fairly flexible program in that it allows you to decide when you want to start taking benefits, provided you’re at least 62 years of age. The longer you wait (up until age 70), the larger a monthly benefit you can lock in. You’re also allowed to file sooner if you prefer not to wait.
Social Security also allows people to work and earn money from a job while receiving benefits. Rules govern that arrangement, and sometimes those rules work against you in ways that are not immediately obvious.
That’s what seems to be happening to one reader who wrote in with a question. They’ll be reaching full retirement age (FRA) in March of 2026 and filed for Social Security in late 2025. Because they’re still working, they were told their income was too high in 2025 to receive any benefits. Now they’re being told they can’t receive benefits this year either, despite earning less and despite reaching FRA in a matter of months.
What the Social Security Administration (SSA) is doing is preemptively withholding payments based on outdated or estimated income data. The reader, understandably, wants to know what they can do about it.
How the Social Security earnings test works in 2026
When you claim Social Security prior to FRA and earn money from a job, you’re subject to an earnings-test limit. Exceeding that limit results in withheld benefits. A common misconception is that this money is gone for good, but these benefits are essentially deferred and paid back to you through higher monthly checks once FRA arrives.
The earnings-test limit changes annually. For 2026, the limits break down as follows:
- Under FRA all year: The limit is $24,480. Above this threshold, $1 in benefits is withheld per $2 of earnings.
- Reaching FRA in 2026: For the months leading up to your birthday, the limit is $65,160. Above that, $1 in Social Security is withheld per $3 of earnings.
- Month of FRA and beyond: There is no limit on earnings. You can earn any amount without affecting your benefit.
It’s also worth knowing that a new proposal now before Congress, the Senior Citizens’ Freedom to Work Act of 2026, would repeal the retirement earnings test entirely. The bill was introduced in the Senate by Sen. Rick Scott and in the House by Rep. Greg Murphy in spring 2026. As of mid-2026 it remains in committee and carries long odds of passage, but the political energy around it signals growing pressure to change the rule.
What counts as “earnings” under the test
Many early filers assume that all retirement income triggers the annual earnings penalty. The earnings test, however, applies only to active income: W-2 wages and net earnings from self-employment. Passive income streams are excluded entirely. Capital gains, interest, dividends, pensions, traditional IRA or 401(k) distributions, and passive real estate income will not reduce your benefits. For self-employed workers, the SSA measures net income after expenses, not gross receipts, when applying the threshold.
One additional point is worth flagging: if your Social Security payments are reduced because you earned over the limit, spouses and children receiving benefits on your work record will have their payments reduced as well.
The special monthly rule for new retirees
The reader’s situation may be resolved through the First Year of Retirement rule. If you retire mid-year after already earning a high salary, the SSA can apply a monthly earnings test rather than an annual one. The specific monthly threshold depends on where you stand relative to FRA.
For someone under FRA for the entire year, the monthly limit is $2,040. But because the reader reaches FRA in March 2026, a more generous threshold applies to the months before that birthday: earning $5,430 or less in any of those months means the SSA considers that month a retirement month, and a full benefit check is payable regardless of total annual income. The distinction matters significantly, because a worker who has already earned well above the annual limit in the first weeks of a year may still qualify for benefits in later months under the monthly test.
There is an additional wrinkle for those who move into freelance work or consulting during their first retirement year. Under the monthly rule, you cannot perform “substantial services” for your own business. The SSA measures this by time: dedicating more than 45 hours a month to your business (or between 15 and 45 hours in a highly skilled profession) can disqualify you from receiving your benefit check for that month, even if net profit for that period is zero.
What to do when the SSA makes a mistake
When the SSA makes a decision you disagree with, you have the right to request a reconsideration. You can find the form online and mail it in, but the fastest way to resolve an earnings estimate error is through your my Social Security account. Logging in and submitting Form SSA-561-U2 digitally lets you provide an accurate, updated estimate of your current income to stop automated withholdings. In many cases, updating your estimated 2026 earnings online can trigger the release of withheld checks without a formal appeal.
This is a step the reader should take promptly, especially since they’ll be reaching FRA in March. At that point, income no longer affects benefit payments. For those born in 1959, FRA is 66 and 10 months. Those born in 1960 or later must wait until 67.
One piece of broader context: the Social Security Fairness Act, signed into law on January 5, 2025, eliminated the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). These rules had reduced or eliminated Social Security benefits for approximately 3.2 million public-sector retirees, including teachers, police officers, and firefighters. By July 2025, the SSA had completed sending over $17 billion in retroactive payments to eligible beneficiaries. Anyone in that group who is now filing should verify that their benefit has been recalculated under the new rules before assuming the SSA’s current figure is accurate.
The reader is entitled to their previously withheld benefits. Because 2026 incorporates a 2.8% Cost-of-Living Adjustment (COLA), base benefit payouts and thresholds are both higher than a year ago, making accurate income reporting even more critical. Once the SSA starts paying at FRA, it will automatically recalculate the monthly benefit to account for the months when checks were withheld, resulting in a higher permanent monthly payout. Acting promptly avoids unnecessary delays in getting that money flowing.
Editor’s note: This article was updated to correct the monthly earnings threshold under the First Year of Retirement rule for people reaching FRA in 2026, which is $5,430 per month (not $2,040, which applies only to those under FRA for the entire year). The number of public-sector retirees affected by the WEP/GPO repeal was also updated to 3.2 million, and the SSA’s $17 billion in retroactive payments by July 2025 was added. Legislative context on the pending Senior Citizens’ Freedom to Work Act of 2026 was included.
Contact [email protected] for any questions or corrections.
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