WELFARE
Do bonuses and severance packages affect your Social Security benefits?
Bonuses and severance packages may affect your Social Security benefits, depending on the specific circumstances of your situation.
After you retire, you might receive payments for work you did before you started to receive Social Security benefits. Usually, those payments will not affect your Social Security benefit if they are for work done before you retired.
Social Security retirement benefits are based on your earnings history, with the amount of your benefit depending on your average earnings over your highest 35 years of work. If you receive a bonus or severance payment during one of those years, it could increase your average earnings for that year and potentially change your Social Security benefit.
What is included in special payments?
Payments can include:
- Income received after retirement, from a wage-based job
- Bonuses
- Accumulated vacation pay or sick pay
- Severance
- Back pay
- Commissions from sales
- Retirement payments
If you were self-employed, any net income you receive after the first year you retire counts as a special payment if you performed the services before you began receiving Social Security benefits.
Earning limits and benefits
If you are younger than your full retirement age, the Social Security Administration deducts $1 in benefits for each $2 you earn above the earnings limit. In 2023, the limit is $21,240.
In the year you reach your full retirement age, benefits are reduced by $1 for every $3 you earn above the earnings limit. In 2023, the limit is $56,520.
Starting with the month you reach full retirement age you can receive full benefits no matter how much money you earn, so there are no problems with special payments.