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  What income counts toward the earnings test limit?
  What income counts toward the earnings test limit?

For purposes of determining whether Social Security benefits are payable, a person's earnings for a taxable year are the sum of pay for services as an employee plus all net earnings from self-employment (minus any net loss from self-employment) for that year.

Wages for Social Security purposes are gross wages - wages before any payroll deductions for income tax, Social Security tax, dues, insurance, or other deductions by the employer. We use gross wages as the basis for Social Security credit and for determining whether benefits must be withheld because of earnings.

Nonwork sources of income, such as:

  • inheritance payments,
  • pensions,
  • income from investments,
  • IRA distributions,
  • interest,
  • 401(k) distrubutions, or
  • other sources;
do not count as wages for the earnings test. The Social Security retirement program insures against loss of earnings from work and not against the failure to have investment income.

More information may be found in our publication called "How Work Affects Your Benefits," publication number 05-10069, which is available on the Internet at:

Employers sometimes make payments to employees during periods of absence from work (e.g., vacation pay, sick pay, etc.); make current payment for work previously done (e.g., deferred payments); or make extra payments as a reward for good work (e.g., bonuses). These are generally referred to as a Special Wage Payment (SWP). Usually, those payments will not affect your Social Security benefit if we know they are compensation for work done before you retired.

For more information on Special Wage Payments, see our publication, "Special Payments After Retirement" at

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