Social Security Earnings Test with Spousal Benefits

A reader writes in, asking:

“Does the SS earnings test apply to spousal benefits? If so, how exactly does that work?”

For those unfamiliar with the Social Security earnings test, the general idea is that if you claim Social Security benefits prior to full retirement age and you work while you’re entitled to those benefits, the earnings test can result in all or part of your benefits being withheld if your earnings exceed a certain threshold.

Then, when you reach full retirement age, your benefit is adjusted upward to account for months in which you received no benefit or a reduced benefit due to the earnings test. For example, if you claimed 36 months early but the earnings test resulted in benefits being withheld for 24 of those months, when you reach full retirement age your monthly benefit will be adjusted to what it would have been if you had only claimed 12 months early rather than 36.

Whose Benefits Can Be Withheld?

One question I see frequently is whether Spouse A’s earnings can affect Spouse B’s benefits. And the answer is, yes, sometimes. Specifically, as a result of the earnings test, your earnings prior to full retirement age can result in withholding of:

• Your retirement benefit,
• Your benefit as a spouse or widow/widower,
• Anybody else’s benefit based on your work record (e.g., your spouse’s benefit as your spouse or your child’s benefit as your child).*

Your earnings cannot, however, result in withholding of anybody else’s own retirement benefit.

Whose Age Matters?

For application of the earnings test, it is only the age of the person with the earnings that matters.

Example 1: Arthur is 64, and his wife Betty is 68. Arthur has filed for retirement benefits, and Betty has filed for a spousal benefit based on Arthur’s work record. Arthur is still working. The earnings test can still reduce Betty’s benefit as a spouse even though she has reached her full retirement age. The key point is that Arthur is the one with earnings, and he hasn’t reached his full retirement age.

Example 2:  Connie is 68, and her husband Daryl is 64. Daryl is receiving a spousal benefit based on Connie’s work record. Daryl is still working. His earnings can reduce his benefit as her spouse, even though she has reached full retirement age. Again, the key point is that Daryl is the one with the earnings, and he is the one who hasn’t yet reached full retirement age.

In either of the above examples, if the younger spouse was not working and it was the older spouse (the one beyond full retirement age) who was working, the earnings test would have no effect.

Benefit Adjustments at Full Retirement Age

When you reach full retirement age**, your own benefit (whether it’s a retirement benefit, benefit as a spouse, or benefit as a widow/widower) gets adjusted as necessary to account for months in which the earnings test resulted in your benefits being withheld. Nobody else’s benefit gets adjusted at that time.

So, in our Example #1 above, when Arthur reaches FRA, his benefit will be adjusted, but Betty’s will not be.

Example 3: Edward is 62, and his wife Francesca is 64. Francesca is receiving spousal benefits on Edward’s work record. Edward is still working. When Francesca reaches full retirement age, her benefit as a spouse gets adjusted upward based on the number of months in which the earnings test resulted in a reduced benefit or no benefit. It does not, however, get adjusted again when Edward reaches full retirement age, even if the earnings test results in additional months of withholding from her spousal benefit in the interim.

*Exception: Your ex-spouse’s benefit on your work record will not be reduced as a result of your excess earnings if you have been divorced for at least 2 years.

**People claiming widow/widower benefits also have a benefit adjustment calculation that occurs at age 62, in addition to the one that occurs at full retirement age.