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, but you’re also allowed to file sooner if you don’t want to wait on your money.
Social Security also allows people to work and earn money from a job while receiving benefits. But there are rules to follow in that regard. And sometimes, those rules might end up biting you.
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 get any benefits. But they’re also being told they can’t get benefits this year despite now earning less, and despite reaching FRA in a few months.
What the Social Security Administration (SSA) is doing is basically preemptively withholding payments based on outdated or estimated data. And understandably, the reader wants to know what they can do.
How the Social Security earnings test works in 2026
When you claim Social Security prior to FRA and make money from a job, you’re subject to an earnings-test limit. Exceeding that limit results in withheld benefits. However, it is a common misconception that this money is “lost.” 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 are as follows:
- Under FRA all year: The limit is $24,480. After this, $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. From there, $1 in Social Security is withheld per $3 of earnings.
- Month of FRA and beyond: There is no limit on earnings.
What Counts as “Earnings” under the Test?
Many early filers assume that all retirement income triggers the annual or monthly earnings penalty. However, the earnings test only applies to active income, which includes W-2 wages and net earnings from self-employment. Passive income streams—such as capital gains, interest, dividends, pensions, traditional IRA or 401(k) distributions, and passive real estate income—do not count toward the earnings test and will not reduce your benefits.
The “Special Monthly Rule” for New Retirees
The reader’s problem might be solved by the First Year of Retirement rule. If you retire mid-year after already earning a high salary, the SSA can apply a monthly limit rather than an annual one. In 2026, if you earn $2,040 or less in any given month after retiring, you are entitled to your full check for that month, regardless of your total yearly income.
However, if you transition into freelance work or consulting during your first year of retirement, you must navigate an extra self-employment constraint. Under the monthly rule, you cannot perform “substantial services” for your business. The SSA measures this by time; dedicating more than 45 hours a month (or between 15 and 45 hours for highly skilled professions) can disqualify you from receiving your benefit check for that month, even if your net business profit for that specific period is zero.
What to do when the SSA makes a mistake
When the SSA makes a decision you don’t agree with, you have the right to request a reconsideration. While you can still find the form online and mail it in, the fastest way to resolve an earnings estimate error today is through your my Social Security account. By logging in and submitting Form SSA-561-U2 digitally, you can provide an accurate, updated estimate of your current income to stop automated withholdings. Updating your estimated 2026 earnings digitally can often trigger the release of withheld checks without a formal appeal.
This is a step the reader above should definitely take—especially since they’ll be reaching FRA in March, at which point their income shouldn’t impact their benefit payments one bit. For those born in 1959, remember that your FRA is 66 and 10 months, while those born in 1960 or later must wait until 67.
The good news is that the reader is entitled to their previously withheld benefits. Because 2026 incorporates a 2.8% Cost-of-Living Adjustment (COLA), base benefit payouts and baseline thresholds are structurally higher, making accurate income reporting even more critical. Once the SSA starts paying them at FRA, they will automatically recalculate the monthly benefit to account for the months where checks were withheld, resulting in a higher permanent monthly payout. Being proactive now avoids having to wait longer than necessary to get that money flowing.
Editor’s Note: This article has been updated to fully align the reader’s retirement case study with the active 2026 Social Security frameworks and cost-of-living adjustments. It introduces a breakdown of what explicitly qualifies as eligible income under the federal earnings test and details the monthly hourly limits applied to new self-employed consultants. The guide also expands on the exact digital reconsideration forms required to correct automated withholding errors through the online portal.
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