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By Suzanne Blake
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Some working Americans collecting Social Security could temporarily lose nearly $1,000 in benefits if their earnings exceed a new federal limit in 2027.
The Social Security Administration has set the 2027 retirement earnings test limit at $25,560, up from $24,480 in 2026, for beneficiaries who will remain below full retirement age throughout the year. For every $2 they earn above the limit, the agency withholds $1 in Social Security benefits.
The higher threshold means beneficiaries can actually earn more before Social Security starts withholding benefits. However, someone earning just enough above the new limit could still see hundreds or thousands of dollars withheld over the course of the year.
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“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.
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Why It Matters
Millions of older Americans continue working after they begin claiming retirement benefits. Social Security's earnings rules are therefore especially important for people balancing wages with their monthly benefit checks.
The earnings test can be particularly confusing because exceeding the annual threshold doesn't simply trigger a tax. Instead, the Social Security Administration can withhold part or, depending on earnings, potentially all of a worker's Social Security benefits until the required amount has been withheld.
The 2027 threshold is higher than this year's limit, meaning beneficiaries can earn an additional $1,080 before the general earnings test begins to apply.
But with it comes another Social Security change. The maximum amount of earnings subject to Social Security payroll taxes will increase from $184,500 in 2026 to $192,300 in 2027. Employees pay a 6.2 percent Social Security tax on wages up to that amount, while employers contribute another 6.2 percent.
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How Social Security Earnings Limit Is Changing
There are two earnings-test thresholds, depending upon whether the beneficiary will reach full retirement age during the year.
For beneficiaries who remain under full retirement age throughout 2027, the annual exempt amount will be $25,560, equivalent to $2,130 per month. Social Security withholds $1 in benefits for every $2 earned above that annual amount.
But for people who reach full retirement age during 2027, a considerably higher threshold of $67,920 applies to earnings received before the month they reach full retirement age. Social Security withholds $1 for every $3 earned over that 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, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
Could Seniors Really Lose Nearly $1,000?
In some cases, a senior will indeed lose around $1,000 under the new Social Security rules. This specifically applies for those collecting Social Security who remain younger than full retirement age throughout 2027.
If the person earns:
- $25,560: No benefits would be withheld under the annual earnings test.
- $26,560: The beneficiary is $1,000 over the limit, meaning $500 in benefits could be withheld.
- $27,500: The beneficiary is $1,940 over the limit, resulting in $970 being withheld.
- $30,000: Earnings are $4,440 over the limit, producing $2,220 in benefit withholding.
Thompson said many of his clients will see the impact firsthand.
“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 Social Security Benefits Permanently Lost?
The benefits will not be lost forever.
The Social Security Administration (SSA) says on its website that benefits withheld under the retirement earnings test are not “lost.” Once the beneficiary reaches full retirement age, the agency will increase their monthly benefit to account for the months in which benefits were withheld.
That is because at full retirement age, the SSA recalculates the person's benefit by adjusting the reduction factors originally applied to the benefit. It also reviews the earnings records of beneficiaries who continue working to determine whether their additional earnings increase their monthly benefit.
“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 those at or above full retirement age. However, full retirement age depends on a person's birth year and has gradually increased under federal law.
Social Security Taxable Maximum Will Also Rise
Separately, workers with higher incomes will face a larger amount of wages subject to Social Security payroll taxes in 2027. The taxable maximum will increase from $184,500 in 2026 to $192,300 in 2027.
At the 6.2 percent employee Social Security tax rate, a person earning at least $192,300 would pay as much as $11,922.60 in Social Security payroll taxes in 2027, with their employer contributing the same amount. Self-employed workers meanwhile face a 12.4 percent Social Security tax rate on covered earnings.
What Happens Next
The new earnings test thresholds and taxable maximum take effect in 2027, but most seniors will keep getting their benefits without much change.
“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.
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here.
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