Data Center Contractors Have 9.9 Months of Backlog. His $10,000 in Overtime Will Bring a Tax Break, but Social Security Will Still Withhold $4,760
A retired tradesman takes a data center overtime gig expecting a tax break to offset the extra earnings, but Social Security has its own math that has nothing to do with what shows up on his tax return.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Picture a retired tradesman, age 64, who thought he was done with job sites. Then a contractor calls. A data center is going up nearby, skilled hands are scarce, and he can have as much overtime as he wants. In 2026 he earns $24,000 in regular wages plus $10,000 in overtime, for $34,000 total.
He collects Social Security and won’t reach full retirement age (FRA) before December. He’s heard about the new federal overtime tax break. Both facts are true, and they pull his money in opposite directions.
Data Center Demand Is Handing Retirees Extra Shifts
The Associated Builders and Contractors reported in September that roughly one in six of its members is currently under contract to work on a data center, the highest share on record. Its backlog indicator rebounded to 8.5 months in August.
Firms with data center work reported 9.9 months of backlog versus 8.3 months for firms without it. The group’s chief economist offered some insights, saying, “Data centers continue to keep contractors busy even as activity softens in other segments.” For an experienced tradesman, that means open shifts. For Social Security, those shifts count as earnings.
How $34,000 in Wages Triggers a $4,760 Holdback
Social Security applies an earnings test to anyone collecting benefits before FRA. For 2026 the limit is $24,480. Above that line, Social Security withholds $1 in benefits for every $2 you earn.
His $34,000 puts him $9,520 over the limit. Half of that is $4,760 in withheld benefits. The higher $65,160 limit only applies in the calendar year you reach FRA, so it doesn’t help him.
Social Security can withhold monthly benefit payments to collect the $4,760 reduction. If his benefit is $2,000 a month, that could mean two full checks plus part of another payment, depending on how SSA applies the withholding. If our tradesman’s benefit is $2,000 a month, roughly three checks would be withheld, and Social Security later returns the extra $1,240 it kept.
Why His Overtime Deduction Shrinks to About $3,333
The overtime deduction runs for tax years 2025 through 2028. It covers only one thing. That is the overtime premium required under the Fair Labor Standards Act, which the IRS describes as the extra “half” of time-and-a-half pay.
If all $10,000 of his overtime is eligible time-and-a-half, roughly $3,333 is the premium. He subtracts that amount. The other two-thirds is taxed as ordinary pay. At a 12% federal rate, the deduction reduces his tax bill by about $400.
Social Security Counts Every Dollar of Overtime
The deduction shows up on his tax return. The earnings test uses his reported wages, and his employer still reports the full $34,000. Eligible overtime is still subject to Social Security and Medicare payroll taxes, too.
So the same paycheck gets measured two ways:
- On his income tax return, about $3,333 of overtime premium comes off his taxable income.
- For the Social Security earnings test, all $34,000 counts against the $24,480 limit.
Next spring’s tax break of about $400 sits next to $4,760 in benefit checks that won’t arrive this year.
Withheld Checks Come Back as a Bigger Benefit Later
When he reaches FRA, Social Security recalculates his benefit to give him credit for months affected by the earnings test. That adjustment can permanently boost his monthly check.
Nevertheless, he still faces a cash flow hit. If he counts on early-year checks for the mortgage or groceries, the overtime could leave him short for the first few months. Phasing back into work brings its own tax quirks, which we walked through in a free semi-retirement guide here.
Two Numbers to Run Before Saying Yes to More Shifts
- First, add his total 2026 wages, regular pay plus overtime, and compare that with $24,480. Each $2 over the line costs $1 in benefits this year, and giving Social Security an updated earnings estimate early helps him avoid an overpayment notice later.
- Second, separate his total overtime pay from the smaller piece that is eligible for the deduction. Both numbers come from the same paycheck but answer different questions, and mixing them up leads people to overestimate what the tax break does.
The extra shifts can still pay off. The wages are real, the deduction is real, and the withheld benefits come back as a larger monthly check. Just plan around the timing, because Social Security never takes off the tax deduction before it runs the earnings test. Run your own balance sheet first. Your wage mix, benefit amount, and birth year can all change the math before you sign up for the next shift.
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.
