Workers Over $24,480 Face 50% Benefit Penalty

A 62-year-old widow is holding off on claiming her Social Security benefits because the current rules will cut her paycheck if she collects them while working.

Her mother, who wrote to certified Social Security adviser Russell Gloor, believed a recent change in tax law meant her daughter could collect benefits without penalty. The adviser corrected that understanding, noting that two separate rules apply to the woman’s situation.

The first rule is the Annual Earnings Test. For 2026, a person working before their full retirement age of 67 can earn up to $24,480 without losing benefits. If they earn more, Social Security deducts $1 from their benefit for every $2 they exceed that cap. Gloor explained that if the woman earns $25,000 over the limit, the agency will withhold $12,500 from her benefits for the year.

The second rule involves income tax. The law known as the One Big Beautiful Bill provides an extra $6,000 tax deduction for people aged 65 and older to offset taxes on Social Security income. Gloor clarified that this tax break does not change the earnings limits for workers under 67. It also expires after the 2028 tax year unless Congress extends it.

The woman’s husband, a doctor, died recently after a marriage of more than 10 years. He had previously been married to another person. The widow is a nurse who plans to work until age 67. Gloor stated that waiting is a prudent choice because the earnings limit will disappear once she reaches 67. At that point, she can compare her own benefit from her nursing career against the widow’s benefit from her late husband and claim the larger amount.

Gloor noted that if she stops working or moves to part-time employment before 67, she can revisit her decision. Until then, continuing to work full time while claiming early benefits would result in a permanent reduction of her payout by approximately 20% or more.