Paying FICA Tax While Drawing Social Security Benefits - AMAC Foundation Social Security Advisory Service
Many folks remain in the workforce after claiming their Social Security retirement benefits, some on a part time basis, some full time. Often one of their beliefs is that continuing to be subject to the payroll tax—the FICA tax—will increase their monthly benefit as they go forward. When our AMAC Foundation Social Security Advisors are asked for a confirmation on this, our typical answer is along the lines of, “maybe it will, maybe it won’t.” It all depends on the earnings after claiming benefits.
In a previous post on this website, we discussed the indexing process used to determine benefits, and presented an example of a worker’s $21,986 earnings in 1992 being indexed to $61,121 for the average monthly indexed earnings calculation when their benefit is calculated. If this indexed amount—the $61,121—was the lowest of all the annual earnings, then any earnings after claiming benefits would need to exceed this amount to generate an increased monthly benefit.
So, if a worker remains in a job paying high wages, and if their current and future earnings are likely to exceed the national average wage index, it is likely that their benefit will continue to grow. But, if the worker claims benefits and then decreases earnings, for example entering a lower paying job or shifting to part time employment, then it is unlikely that earnings after claiming benefits would be high enough to replace the lowest value in the 35 years of indexed earnings maintained by the Social Security Administration.
Another possible scenario is that continuing to work after claiming benefits would allow a worker with zero earning years in their work record to replace one of those zero years with actual earnings, and this would increase the benefit going forward.
In any event, it’s nothing that the individual beneficiary would need to worry about tracking. Every year, after SSA processes the earnings data forwarded by the IRS, they execute a process called Automated Earnings Reappraisal Operation, or AERO, that compares the new earnings amount to the workers earnings record and, if the newly reported earnings are higher than any of the 35 annual indexed earnings records, the beneficiary will be notified, and the adjustment will be made retroactive to January 1. The AERO process usually takes place early in the fourth quarter of the year.