About Social Security’s “First Year Rule”
Dear Rusty, I'm considering filing for my SS at age 64 in February, before my full retire- ment age of 66 years and 10 months. I’m working full time and would like to continue earning until I meet the $21,240 limit for this year. When does the $21,240 limit go into effect? Does it start after receiving my first SS benefit deposit? Or does Social Security go by my year-to-date earnings starting on January 1st? If I file in February and it takes 90 days to receive my first SS deposit, and at that point my year-to-date earnings are $18,500, can I continue to work until I earn the balance of the $21,240 ($2,740 more) and then stop work- ing? Or do they only count the earnings after I receive the first benefit payment? I know that, for anything earned over $21,240, I’ll need to repay $1 for every $2 over the limit. Signed, Ready to Retire
So, if your goal is to work only to the point that no penalty will be assessed, you can work until your 2023 earnings reach $21,240 (whenever that is). Or you could work even a little bit longer and simply take the penalty (half of what you exceed the annual limit by), in which case Social Securitywill simply withhold future bene- fits for enough months for them to recover what is owed for exceeding the limit. But if you continue working full time and will substantially exceed the annual limit, it’s likely Social Security will say you are tempo- rarily ineligible to collect benefits (until your earnings are less or you reach your full retirement age when the earnings test no longer applies). In any case, if you have benefits withheld for any months due to exceeding the earnings limit, when you reach your full retirement age you will get time-credit for any month in which benefits weren’t received, which will result in your monthly amount increas- ing slightly after your FRA is attained. Signed, Russell Gloor This article presents the opinions of the AMAC Foundation Staff and is intended for informa- tion purposes only. It does not represent legal or financial guidance.
Dear Ready, Since you haven’t yet reached your full retirement age (FRA), if you claim now and are working, things will work somewhat differently during your first year collect- ing benefits. If you claim for your benefits to start in February, only your earnings starting in February count toward the earnings limit. But during your first calendar year, once your benefits start, you’ll be subject to a monthly earnings limit of $1,770 and, if that is exceeded in any month (Febru- ary–December), you won’t be eligible for benefits for that month. That means that they could withhold your entire monthly amount for any 2023 month after January that exceeds the monthly limit. This is part of Social Security’s “first year rule,” which applies only during your first calendar year collecting. If, instead, you claim for your benefits to start in March, then the monthly limit will apply from March through Decem- ber. Remember, it’s not when your payment is received that counts; it’s when your bene-
fits start (Social Security pays benefits in the month following the month earned). Starting in 2024, only the annual limit would apply. Nevertheless, the “first year rule” offers some latitude on your earnings. If the penalty for exceeding the annual earn- ings limit ($21,240 for 2023) is less than the penalty which results from using the monthly limit, Social Security will use the annual limit and assess the smaller penalty amount. So, if your annual (full-year) 2023 earnings are less than $21,240, no penalty will be assessed, or if you only exceed the annual limit by a small amount, you’ll be assessed a penalty of $1 for every $2 you are over the limit. But if your annual earn- ings are substantially more than the 2023 limit, Social Security may deem you tempo- rarily ineligible to get benefits. When you complete your application, there will be a section asking you to tell them about this year’s earnings as well as what you expect next year’s earnings to be. From that they will decide whether you are currently eligi- ble to collect benefits.
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Volume 17 Issue 4 • 47
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