Some Seniors Could See Nearly $1,000 in Social Security Benefits Withheld Under New Rules

Some older Americans who are still working and collecting Social Security may have close to $1,000 in benefits withheld if their income goes above a new federal earnings limit in 2027.

The Social Security Administration has raised the retirement earnings test limit for 2027 to $25,560, up from $24,480 the previous year, for beneficiaries who will stay below full retirement age for the entire year. Under the rule, Social Security withholds $1 in benefits for every $2 earned above the limit.

That higher cutoff gives beneficiaries more room to earn before withholding begins. Even so, a worker who goes only modestly above the threshold could still lose hundreds or thousands of dollars in benefits over the year.

“Social Security's decision to increase the maximum amount of earnings subject to payroll taxes in 2027 will mostly affect higher-income workers, including seniors who continue working, with employees potentially paying nearly $500 additionally each year and self-employed individuals facing nearly $967 in additional taxes,” Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek.

Why It Matters

Millions of older Americans keep working after they begin receiving retirement benefits, which makes Social Security’s earnings rules especially relevant for people trying to balance paychecks and monthly checks.

The earnings test can be easy to misunderstand because going over the annual limit does not simply create a tax bill. Instead, the Social Security Administration can withhold part of a worker’s benefits, and in some cases all of them, until the required amount has been recouped.

The 2027 threshold is higher than the current limit, giving beneficiaries the chance to earn an extra $1,080 before the general earnings test applies.

Another change is coming at the same time. The maximum amount of earnings subject to Social Security payroll taxes will rise from $184,500 to $192,300 in 2027. Employees pay 6.2 percent of wages up to that amount, while employers pay an equal share.

How the Social Security Earnings Limit Is Changing

The earnings test has two different thresholds, depending on whether a beneficiary reaches full retirement age during the year.

For beneficiaries who remain under full retirement age throughout 2027, the annual exempt amount will be $25,560, or $2,130 a month. Social Security withholds $1 in benefits for every $2 earned above that level.

For people who reach full retirement age during 2027, a much higher threshold of $67,920 applies to income earned before the month they reach that milestone. In that case, Social Security withholds $1 for every $3 earned above the limit.

“The wage cap, or contribution base, moves each year to account for changes in average wages. The real impact is on seniors who continue to work while receiving benefits after reaching full retirement age,” Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, told Newsweek.

Can Seniors Really Lose Nearly $1,000?

In some situations, yes. The near-$1,000 reduction would apply to beneficiaries who are still younger than full retirement age throughout 2027.

If a person earns:

• $25,560: No benefits would be withheld under the annual earnings test.
• $26,560: The beneficiary is $1,000 above the limit, so $500 in benefits could be withheld.
• $27,500: The beneficiary is $1,940 above the limit, resulting in $970 withheld.
• $30,000: Earnings are $4,440 above the limit, leading to $2,220 in benefit withholding.

Thompson said many of his clients will feel the change directly.

“Although their Social Security benefits are not subject to payroll taxes, their earned income is,” he said. “I like to compare what they are receiving in Social Security benefits versus how much they are paying in payroll taxes so they can see the difference. I often ask them why they continue to work, and in some instances, they simply enjoy what they do.”

Are the Benefits Lost Forever?

No. The withheld money is not gone permanently.

The Social Security Administration says benefits withheld under the retirement earnings test are not “lost.” Once a beneficiary reaches full retirement age, the agency increases the monthly benefit to reflect the months when payments were withheld.

That happens because the SSA recalculates the benefit at full retirement age by adjusting the original reduction factors. It also reviews the earnings records of people who continue working to see whether extra income should boost the monthly payment.

“This adjustment isn't a new tax, but rather an annual increase tied to national wage growth that allows Social Security to collect additional revenue as wages rise, helping support a program that is facing some well-known growing financial pressure,” Beene said.

These rules do not apply to people who are at or above full retirement age, though that age varies by birth year and has gradually increased under federal law.

Social Security Taxable Maximum Also Going Up

In a separate change, higher-income workers will face a larger share of wages subject to Social Security payroll taxes in 2027. The taxable maximum will rise from $184,500 to $192,300.

At the 6.2 percent employee tax rate, someone earning at least $192,300 would pay as much as $11,922.60 in Social Security payroll taxes in 2027, and the employer would match that amount. Self-employed workers face a 12.4 percent Social Security tax rate on covered earnings.

What Happens Next

The new earnings test thresholds and taxable maximum will take effect in 2027, though most seniors should see little change in their benefits.

“For most seniors, I don't see this having much of a long-term impact, especially those who are currently receiving benefits and are no longer working,” Thompson said.