This Social Security Mistake Could Slash Your Monthly Check in Half

While Social Security provides an essential retirement income source for many Americans, it often leaves a large gap that your savings alone might not fill. So, even though you can claim these senior benefits as early as age 62, you may still be working a job to create room in your budget.

But you might not be aware that your work income could significantly slash your Social Security check or even leave you with a big bill if you're not careful. Here's what you should know about how working affects your benefits, how you can address overpayments, and how to avoid issues in the first place.

How the Social Security earnings test works

The Social Security earnings test applies to any beneficiary who collects payments before reaching their full retirement age (FRA), which is 67 for most of today's retirees, and still earns income from work. Income from your retirement account, rental property, pensions, and other sources doesn't count.

The SSA sets limits on how much retirees can earn before it starts to temporarily claw back a portion of their Social Security payments. For 2026, these amounts are $24,480 if you're under FRA for the entire year and $65,160 if you reach FRA in that year. These limits go up each year to account for inflation.

What the SSA does if you exceed the limits

If you're under FRA the entire year, the SSA will withhold $1 for every $2 you earn from your job above the $24,480 threshold. During the year when you reach FRA, this changes to $1 for every $3 of your work income above the $65,160 threshold. This all stops the month you reach FRA.

Depending on your work income, the benefit reduction can be large. For example, if you're under FRA the whole year and earn $40,000 from your job, that's around $7,760 taken from your Social Security that year. However, the impact is much less once you qualify for the larger annual exemption.

While smaller Social Security checks can be a financial strain, the clawed-back money isn't gone forever. At FRA, your monthly benefits will adjust to make up for any previously withheld funds due to the test.

How failing to report earnings can trigger an overpayment

To properly adjust your check, the SSA needs to know that your work income is exceeding the earnings test thresholds. It usually verifies your earnings monthly in the first year and then uses a yearly estimate afterward. Reliance on estimates can create problems if your income suddenly changes.

If it unexpectedly goes up, the SSA might not withhold enough, leaving you with an overpayment. When that happens, the SSA sends an overpayment notice, and you must address the overage within 30 days. If you don't, the SSA can withhold up to half of your monthly benefit until you address the overpayment.

How to resolve the overpayment

Promptly repaying the SSA is ideal if you agree with the overpayment amount and have enough money.

The overpayment letter should provide a remittance ID and specific payment instructions. Typically, you can pay online via pay.gov or call the SSA at 1-855-807-8807 during business hours.

If you can't afford a lump-sum payment, the SSA offers Form SSA-634, which lets you request to make smaller monthly payments from future benefits to cover the overage. However, approval isn't guaranteed. You can also call 1-800-772-1213 to ask about other payment plan options.

What to do if you disagree with the SSA

The SSA offers a few other options if you don't agree with the overpayment decision or amount.

You could request a waiver using Form SSA-632 if you don't think the overpayment is your fault or submit SSA-561 if the overpayment amount doesn't seem correct. You can also go through the more involved appeal process. Expect the SSA to ask for documentation to back up any calculation disagreements or claims of financial hardship.

You must take such actions within the 30-day notice period and wait for the SSA's decision. Keep in mind these paths aren't guaranteed to work, especially if you failed to report your earnings in the first place.

How to avoid Social Security overpayments

Avoiding the headaches of a Social Security overpayment notice or improper withholding of your benefits requires proactive reporting. The SSA encourages calling about key changes to your income and employment, as you can't do this online.

While you'd ideally report the change immediately, SSA says you should at least do so no later than the 10th of the month after the change occurs. Do the same for any changes to your family status, personal records, or address, which might also affect your benefits.

Bottom line

Unfortunately, you can't avoid the earnings test rules if you're earning over the thresholds before FRA. However, keeping the SSA updated about your income should at least help prevent an overpayment notice or smaller-than-expected benefit amounts. And if you do get a notice, either promptly pay the amount due or choose one of the other paths.

Since many Social Security beneficiaries struggle financially, it's also wise to free up your retirement budget, which might allow you to work less and help avoid draining your savings prematurely. You might want to get a financial advisor's input as well.