SOCIAL SECURITY & YOU: The Social Security earnings penalty - a bad law


The Social Security earnings penalty. I don’t like this law. I’ve never liked this law. Before I explain why, let me clarify what I am talking about. The rules say that if you are a Social Security beneficiary who is under age 66 and still working, one dollar must be deducted from your Social Security checks for each two dollars you earn over $17,640 annually. A more lenient penalty applies in the year you turn 66. The earnings threshold is $46,920 with a 3 for 1 withholding scheme. In other words, one dollar is withheld from your benefits for each three dollars you make over $46,920. And once you turn age 66, the penalties go away. Starting with the month you turn 66, you could make a million dollars a day and still be eligible for Social Security checks.
But in this column I’m primarily addressing the law that applies to people under age 66. In a bit, I’ll tell you why I don’t like the law now. But first I want to tell you why I hated it in all of the 32 years I worked for the Social Security Administration. And that’s because it was a mess to administer. To illustrate, I’ll use my own mother as an example.

Back in the 1970s, she was getting Social Security widow’s benefits, but she was working part time to supplement her rather meager benefits. She would start out the year reporting her anticipated earnings to her local Social Security office. They would adjust her benefits accordingly, applying the one dollar deduction for each two dollars earned. Then, inevitably, as the year went on, she’d work a little overtime or pick up a couple extra hours of work. She would dutifully report her change in anticipated earnings to the Social Security people, and further adjustments would be made to her monthly widow’s checks. Then maybe she’d be laid off for a time, and her earnings would go down. She’d file yet another report with SSA, and there would be more adjustments to her benefits.

Finally, once the year was over with and she got her W-2 form, she would make a final report of her earnings to the Social Security office leading to yet another benefit adjustment. And on top of that, they would ask for an estimate of her anticipated earnings for the new year, yet more adjustments would be made, and the whole vicious cycle would start over again.

My mom used to complain bitterly to me about this, saying, “Can’t you do anything to help me?” I always had to tell her that there was (and still is) a law that says SSA employees cannot work on any cases involving their relatives. Though, at the end of this column, I will share some advice I eventually gave my mom, and thousands of other people over the years to help them deal with the earnings penalty rules.

But first, I want to explain a more philosophical reason why I don’t like the earnings penalty. I just don’t understand why someone should be punished if they try to work and earn a little money to supplement their Social Security benefits.

Having voiced that concern, I do understand why the law exists. It goes back to the very beginning of Social Security, in the 1930s. Retirement benefits were intended to replace earnings a person loses when he or she retires. Or to put that another way, a person had to retire to get “retirement” benefits.

Over the years, Congress eased up on that restrictive nature of the original law. At first they said people over age 72 could get benefits even if they were still working. The gradually lowered that to the full retirement age (currently 66). And they allowed people under age 66 to earn some money. But again, not much (currently $17,640).

I understand why Congress isn’t eager to change the law: the cost. The Social Security system would have to pay hundreds of millions of dollars in extra benefits each year if the earnings penalty was eliminated. And at a time when they’re looking for ways to trim Social Security spending (as part of an eventual package of reforms to solve the system’s long-range financing problems), passing a law that would greatly increase program outlays just isn’t in the cards.

So because the earnings penalty isn’t going away anytime soon, let me share with you some tips for dealing with it, so you don’t get hung up in the vicious cycle of earnings variances and benefit adjustments that plagued my mother (and millions of other beneficiaries).

One way to go would be to understate your anticipated earnings. Just tell SSA that you plan to make less than whatever the earnings threshold happens to be. For example, for this year, you would say you expect to make less than $17,640, even if you think you will make more than that. What that means is that SSA won’t withhold any of your benefits. Or to turn that around, it means they will send you a Social Security check every month of this year. But what you must remember is that you will have to pay back some of that money once the year is over. In other words, at the beginning of 2020, you will tell SSA how much money you made in 2019 and they will calculate how much money you have to pay back. I think it’s easier having this one-time accounting as opposed to the frequent adjustments using the regular reporting methods.

If you don’t like the idea of having to owe the government any money, you could go the other way around. For example, you could tell SSA that you plan to make $100,000 in 2019, even though you actually expect to make less than that. In this scenario, SSA won’t send you any Social Security checks. Then in early 2020, you would tell SSA how much money you actually made in 2019 and then they will send you a check to cover the benefits you are due.

I know some of my former SSA colleagues will be absolutely aghast at these suggestions. They will say that I am coaching people to lie to the government. I prefer to think of it as a little fib! And a temporary one at that. Because both scenarios I presented require the claimant to eventually settle the books with SSA. In the end, either with the constant adjustment in checks through the normal procedures or with the one-time accounting using my method, the people eventually get the proper Social Security benefits they are due.
If you have a Social Security question, Tom Margenau has the answer. Contact him at To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at