Special Earnings Limit Rule
Some people who retire in mid-year have already earned more than their yearly earnings limit. That is why we have a special rule that applies to earnings for one year, usually the first year of retirement.
The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings. If you will:
- Be under full retirement age for all of 2020, you are considered retired in any month that your earnings are $1,520 or less and you did not perform substantial services in self-employment.
- Reach full retirement age in 2020, you are considered retired in any month that your earnings are $4,050 or less and you did not perform substantial services in self-employment.
Example: John Smith retires at age 62 on June 30, 2020. He earned $37,000 before he retired.
On October 5th, John starts his own business. He works at least 15 hours a week for the rest of the year and earns an additional $3,000 after expenses. His total earnings for 2020 are $40,000.
Although his earnings for the year substantially exceed the 2020 annual limit ($18,240), John will receive a Social Security payment for July, August and September. This is because he was not self-employed and his earnings in those three months are $1,520 or less per month, the limit for people younger than full retirement age.
John will not receive benefits for October, November or December 2020 because he worked in his business over 45 hours per month in all three months.
Beginning in 2021, the deductions are based solely on John's annual earnings limit.