Will the Social Security Earnings Test Go Away? - MSN/Newsweek
Addressing an issue which has been a topic of Congressional discussion for quite some time, a legislative proposal known as the 2026 Senior Citizen Freedom to Work Act proposes to eliminate the penalty for those who exceed certain income limits while collecting SS benefits before reaching their full retirement age (FRA). The new bipartisan legislative offering proposes elimination of the Social Security Earnings Test, which restricts how much can be earned before some early SS benefits are taken away. For example, in 2026 the earnings limit is $24,480 and younger SS beneficiaries who exceed that amount may have to repay Social Security as much as $1 in benefits for every $2 they are over the limit.
That, of course, is somewhat of a disincentive for SS beneficiaries who are under FRA to work and contribute to the Social Security program, hence reducing SS revenue and worsening Social Security’s looming financial issues. Because the SS trust funds are forecasted to run dry in about 2032, any action which reduces SS revenue must be viewed cautiously. On the other hand, the earning limit also exacerbates the problem caused by SS overpaying benefits to those unsuspecting beneficiaries who exceed the earnings limit, thus causing substantial workload at SSA to manage those overpayments. So this is a somewhat of a point of contention within Congress. And surely, at a time when SSA is facing financial issues, reducing incoming revenue must be viewed with careful eyes, as this MSN/Newsweek article by Suzanne Blake explains. The article rightly suggests that eliminating the SS earnings test in vacuum would cause SS financial harm. Click here to read the Newsweek article.
But the fact is that any changes to Social Security at this crucial juncture must be part of a comprehensive reform plan, which might include both benefit and revenue enhancements which balance changes to the SS program, while correcting some ineffective rules and offering others which yield either cost savings or income enhancements. As an example of leading thinking on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized to serve future generations. AMAC’s position is that this can be achieved without payroll tax increases through relatively minor program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating initial benefits for higher-income beneficiaries. Changes to the age for maximizing benefits are included in AMAC’s position, along with (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) changing the taxable maximum formula to address the unintended loss of revenue; (4) improving survivor benefits, (5) eliminating the reduction in benefits for those choosing to work before full retirement age; and (6) improving savings tools for future retirees, including a savings account that builds estate value. AMAC is resolute in its mission that Social Security be preserved for current and successive generations and has gotten the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade. See AMAC’s proposal for Social Security reform here.