What Income Is Used For The Annual Earnings Test?

If you’re receiving Social Security retirement benefits and you’re under Full Retirement Age (FRA), you may be subject to the Annual Earnings Test. This is a test to see if you’re actually retired enough (per the Social Security Administration’s rules) to receive your Social Security retirement benefit.

You can read up on the rules about the Annual Earnings Test by clicking the link. Effectively, if you earn more than $18,960 (for 2021), then for each $2 over that amount in earnings, your Social Security retirement benefit is reduced by $1. If this is the year that you’ll reach FRA, for every $3 over the limit of $50,520 (for 2021), the reduction in your benefit is $1. Above FRA, there is no Annual Earnings Test.

But what earnings are counted toward the Annual Earnings Test? Read on, you may be surprised by at least one category of earnings that is counted.

Annual Earnings Test

Photo credit: jb

Earnings counted toward Annual Earnings Test

As you might expect, any earnings that you have from a regular job that is covered by Social Security taxation is definitely included toward the Annual Earnings Test. In addition, your Net Earnings from Self Employment (NESE), upon which you are assessed the Self Employment tax, is included as well.

Added to the above are any earnings that have not been included for coverage purposes – specifically smaller amounts that are below the limits for Social Security coverage in the agricultural or domestic employment (and others). These amounts, however small, are included as earnings toward the Annual Earnings Test.

If you happen to have earnings that are above the covered amount – that is, if in 2021 your earnings are above $142,800 – then these amounts are also included toward the Annual Earnings Test. (I always thought this was a weird item to include, since even just including the full covered amount would put you over the Annual Earnings Test, but I suppose SSA is just covering all possible circumstances.)

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