Dear Rusty:  I am 63 years old, and about to apply for my Social Security benefits. I am self-employed but only working part time. I know about Social Security’s annual earnings limit but recently I learned I must also be concerned about a monthly earnings limit of $2,040. My questions are: 

1) How do I find out if I will be subject to a monthly earning limit of $2,040 per month? I thought it was only evaluated annually. 

2) If I choose to cancel Social Security within the first year or after, what are the penalties? Would I have to pay them back for the whole amount for the whole time that they paid me? Which makes no sense, since I have been paid into SS since I was 13 years old. 

Can you help me understand this?  Signed: Claiming Early and Still Working

Dear Claiming Early: It can get tricky if you are still working after claiming your Social Security before your SS full retirement age (FRA), especially during your first year collecting.  I’m happy to answer your specific questions: 

1. There is a special rule which applies during your first year collecting early Social Security benefits (e.g., before your full retirement age or “FRA,” which for you is age 67). What will happen is this: when the IRS provides SSA with your 2026 earnings (in 2027), SSA will review to see if your total 2026 netearnings from self-employment exceeded the 2026 annual limit of $24,480.  If not, no further action is necessary. But if you did exceed the full year 2026 earnings limit, SSA will contact you and ask you to provide them with details about your monthly 2026 net earnings. If you have exceeded the monthly limit in any 2026 month after your SS benefit started, you will not be entitled to SS benefits for that month. Essentially, if you have exceeded the annual limit, you cannot exceed the monthly earnings limit in any remaining month during your first year of collecting. If you exceeded the annual limit, and also any monthly limit, SSA will send you an overpayment notice saying you must repay them for the benefits you were not entitled to receive because you exceeded the monthly earnings limit. 
2. You can, within 12 months of applying for Social Security, ask SSA to withdraw your application for SS retirement benefits. They will do that for you, but you will also be required to repay them all SS benefits that they have already paid to (or for) you. This essentially would “wipe the slate clean” and enable your SS benefit to continue growing, allowing you to apply for a larger monthly benefit later. But if you wait longer than 12 months after you first apply for SS benefits, you can no longer withdraw your application for Social Security. Thereafter, you would be subject to the annual earnings limit (the monthly earnings limit would no longer apply).  

FYI, after you reach your FRA, there is no limit on your earnings, and you could choose to suspend your benefit payments and earn Delayed Retirement Credits (DRCs) to get a higher monthly benefit. Also at your FRA, if SSA withheld any of your benefits because you exceeded the earnings limit before reaching your FRA, you would get time credit for the number of months your benefits were withheld.  Essentially, they would advance your benefit-start month by the number of months your benefits were withheld, yielding a slightly higher monthly amount after your FRA. 

Finally, it’s important to know that the contributions you made to Social Security from payroll taxes (FICA/SECA) over your lifetime are not what determines your monthly SS benefit amount. Your monthly SS benefit is based on two main factors: a) your average monthly earnings (indexed for inflation) for the highest earning 35 years over your lifetime as reported to the IRS, and b) the age at which you claim your SS benefits. Your contributions to Social Security while working only provide you with eligibility to collect SS benefits; the contributions aren’t put into a separate account for you and are not used to calculate your monthly SS benefit.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.