Ernst & Young Is Handing Out $100 Million in “Human Skills” Bonuses. At 63, Social Security Counts the Bonus in the Year He Earned It, Not the Year It Arrives.
A year-end bonus can look like a trap when you are 63 and eyeing Social Security, but the Social Security Administration has a little-known rule that changes everything about how that payment gets counted.
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Ernst & Young said it will award $100 million in bonuses to employees who demonstrate human skills, such as leadership, judgment, business acumen, collaboration, and the ability to adapt, as artificial intelligence reshapes what consulting firms value in their people. For a 63-year-old planning an exit, that bonus can feel like a farewell gift with awkward timing. You want the money. You also want to start Social Security. And you have heard, correctly, that earning too much before full retirement age (FRA) can shrink your monthly check.
On retirement forums, people in their early sixties ask the same question every fall: if I take the bonus and file for Social Security, does the government claw part of it back? The answer is more forgiving than most expect, and it turns on a rule almost nobody talks about.
A Special Payment Rule Changes the Answer
Claim Social Security before FRA, which is 67 for anyone born in 1960 or later, and the earnings test applies. In 2026 you can earn $24,480 from work before Social Security holds back $1 in benefits for every $2 above the limit. A year-end bonus that clears that threshold looks like it triggers a reduction.
The Social Security Administration carves out an exception for this exact situation, called the special payment rule. Compensation you receive after you retire, for work you performed while still on the job, sits outside the annual earnings limit, though it stays fully taxable. Bonuses, accumulated vacation pay, severance, and deferred compensation all typically qualify. The test is when the work was done, not when the check clears.
Picture a hypothetical Ernst & Young employee who turns 63 this fall, qualifies for a human skills bonus on this year’s performance, and retires December 31. When the bonus lands in the first quarter of the following year, it appears on a W-2 and stays outside his earnings limit. His employer reports it to the agency on Form SSA-131, the employer report of special wage payments, and he files in January with his full benefit intact.
Why This Detail Matters More Than the Bonus
Losing a month or two of Social Security is annoying. The bigger risk is making a permanent claiming decision based on a temporary rule you misread. Some people delay filing an extra year to dodge a penalty that was never coming.
Consider the stakes. Claiming at 63 against a FRA of 67 permanently reduces the benefit by 25%, since the first 36 early months cost five-ninths of 1% each and the next 12 cost five-twelfths of 1%. On a $2,400 monthly benefit, that is $600 a month for life, or $7,200 a year. Waiting until 70 raises the benefit to 124% of the FRA amount. Those figures dwarf anything the earnings test holds back temporarily, and withheld benefits return anyway: the agency removes the early-filing reduction for each month it withheld a full check.
The Tax Bill Arrives on Its Own Schedule
The bonus counts as ordinary income in the year you receive it, and that can pull more of your Social Security into taxable territory. Combined income above $25,000 single or $32,000 joint makes part of the benefit taxable; past $34,000 and $44,000 the taxable share climbs toward 85%. A bonus landing in the same year benefits begin can cost more at tax time than the earnings test ever would have.
If the timing is flexible, take the bonus in a year before benefits start, or draw from a Roth account rather than a traditional IRA to hold combined income down in that first Social Security year.
Two Things to Settle Before You File
Before the retirement date is set, two details deserve a look:
- Get the bonus timing in writing. Ask human resources when the payment posts and confirm it compensates work performed before your retirement date. That documentation, plus Form SSA-131 from your employer, is what establishes it as a special payment if Social Security asks.
- Separate the claiming decision from the bonus decision. The earnings test is temporary and largely refundable. The filing choice is permanent and priced in percentage points for life. A one-time payment is a poor reason to move a lifetime calculation.
Every situation carries its own nuances, from state taxes to spousal benefits to health coverage between retirement and Medicare. If you want a starting point, we condensed the 62 versus 67 versus 70 question into a free one-page claiming framework you can work through first. Ernst & Young is paying $100 million for judgment. The one call it will never write a check for is knowing which year your own money belongs to.
Contact [email protected] for any questions or corrections.
Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
