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For millions of Americans nearing retirement, one rule can quietly reduce their Social Security checks, especially if they keep working.
Now, lawmakers are pushing to eliminate that rule altogether. A new bill in Congress would repeal the Social Security "earnings test," a provision that can temporarily reduce benefits for people who claim Social Security before reaching full retirement age while still earning income.
Workers in their early 60s could see more money in the short term if the rule disappears. But the proposal also raises important questions about stress-free retirement planning.
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What the earnings test actually does
The Social Security earnings test applies to people who start collecting benefits before reaching full retirement age, typically between 66 and 67, depending on birth year.
If you continue working and earn above a certain income threshold, part of your Social Security benefits is temporarily withheld. In 2026, that threshold is $24,480 for those under full retirement age.
For every $2 earned above that amount, $1 in benefits is withheld. In the year you reach full retirement age, the threshold rises to $65,160, and the formula becomes less restrictive, with $1 withheld for every $3 earned above the limit.
Once you reach full retirement age, the rule disappears entirely, and your benefits are no longer reduced based on earnings.
Retirees view it as a "hidden tax"
Although the earnings test doesn't permanently take away benefits, it often feels like a penalty.
Rachel Greszler, a senior research fellow at a policy organization, described it during a congressional hearing as something many people perceive as a "50% tax" on earnings above the threshold.
That perception comes from how the rule works. Workers see their benefits reduced as they earn more income, even though they've already paid into Social Security throughout their careers.
The key detail many people miss
The withheld benefits aren't gone forever. Once you reach full retirement age, the Social Security Administration recalculates your benefit and gradually pays back what was withheld through higher monthly payments.
However, that doesn't always ease concerns. Critics argue that some retirees may not live long enough to fully recover those withheld benefits, especially if they claim early and have shorter life expectancies.
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What the proposed bill would change
The legislation introduced by Greg Murphy and supported by Rick Scott would eliminate the earnings test entirely.
That would allow Americans to collect Social Security benefits before full retirement age without facing any reduction tied to earned income. In practical terms, it would remove a major financial disincentive for older workers who want or need to stay in the workforce.
More Americans are working into their 60s and beyond. In 2024, nearly one in five Americans age 65 and older were still part of the labor force. Among those ages 55 to 64, the participation rate was even higher.
As Rick Scott noted, the earnings test was originally created during the Great Depression to encourage older workers to leave the workforce and make room for younger workers. With more Americans working later in life, that rationale no longer fits current economic conditions.
Impact on your finances
If the earnings test is repealed, the immediate effect would be straightforward. Workers who claim Social Security early would no longer see their benefits reduced because of earned income. That could mean higher monthly cash flow during a time when many households are balancing work and retirement income.
For someone earning above the current threshold, the difference could amount to thousands of dollars per year in benefits that would otherwise be withheld.
The potential downside
While the change sounds appealing, it's not without risks. One concern is that eliminating the earnings test could encourage more people to claim Social Security earlier than they otherwise would.
That decision has long-term consequences. Claiming benefits early permanently reduces your monthly payment compared to waiting until full retirement age or later.
A report from the Congressional Research Service found that if more people claim early, it could lead to lower lifetime benefits, increasing the risk of financial strain later in retirement, particularly for certain groups like women and older seniors.
Social Security funding impact
The impact on the broader Social Security system appears to be relatively small. According to estimates from the Social Security Administration, eliminating the earnings test could slightly improve the program's long-term funding outlook, reducing its projected shortfall by about 1% starting in 2028.
This means the proposal isn't likely to dramatically change the program's financial trajectory, but it also isn't expected to make it significantly worse.
What you should consider
If you're approaching retirement and still working, the earnings test is an important factor in deciding when to claim Social Security.
Taking benefits early while earning income can reduce your monthly payments in the short term, even if those reductions are later adjusted.
If the rule is eventually repealed, it could simplify that decision by removing one layer of complexity. But the bigger question, when to claim benefits, will still depend on your overall financial situation, health, and long-term plans.
Bottom line
Congress is considering eliminating the Social Security earnings test, a rule that reduces benefits for some early retirees who continue working. If you're trying to supplement your Social Security income, the change could mean more flexibility and a higher income in the near term.
However, it could also encourage earlier claiming decisions that lead to lower monthly benefits over time. Until any changes are finalized, understanding how the rule works and how it fits into your overall retirement strategy remains essential.
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