Social Security rules for 2026: Earnings limits, early retirement penalties, and key tax changes
Planning to work while retired in 2026? Check the new $24,480 earnings limit, updated tax caps, and the financial trade-offs of filing for benefits at age 62 versus Full Retirement Age.
One of the most common misconceptions about Social Security is that you cannot work while receiving benefits. You can, but if you have not yet reached your Full Retirement Age (FRA), your benefits may be temporarily reduced if you earn too much. This is known as the "Retirement Earnings Test."
For 2026, the Social Security Administration has raised the earnings limits significantly.
Sources & References
The information presented in this guide is sourced directly from official publications released by the Social Security Administration (SSA) and the Department of Veterans Affairs (VA) regarding the 2026 Cost-of-Living Adjustment (COLA). All benefit rates, thresholds, and tax limits reflect the official 2.8% adjustment effective December 2025 and January 2026.
Primary Government Sources:
- VA Disability Compensation Rates (2026)– Department of Veterans Affairs
- Cost-of-Living Adjustment (COLA) Information– Social Security Administration
- 2026 Social Security Fact Sheet– Social Security Administration
- Retirement Planner: Benefits by Year of Birth– Social Security Administration
Disclaimer: This content is for informational purposes only and is based on federal data available as of December 2025. Please consult a qualified financial advisor or accredited Veterans Service Officer (VSO) for advice specific to your personal situation.
1. If You Are Under Full Retirement Age All Year
If you will not turn your Full Retirement Age (currently 67 for anyone born in 1960 or later) in 2026, the earnings limit is $24,480.
- The Penalty: For every $2 you earn above this limit, Social Security will withhold $1 from your benefit payments.
- Note: These withheld benefits are not lost forever. Once you reach FRA, your monthly benefit is recalculated to credit you for the months payments were withheld.
2. The "Transition Year" Rule
If you will reach your Full Retirement Age during 2026, a higher limit applies to the earnings you make in the months before your birthday. The limit for this period is $65,160.
- The Penalty: For every $3 you earn above this limit, Social Security will withhold $1 from your benefits.
3. After Full Retirement Age
Starting with the month you reach your Full Retirement Age, the earnings test disappears completely. You can earn any amount of money from a job or business without a single dollar being withheld from your Social Security checks.
Early Retirement Reductions (The Age 62 Math)
You can claim Social Security retirement benefits as early as age 62, but doing so comes at a steep cost. Because you will receive checks for a longer period, the monthly amount is permanently reduced.
For those born in 1960 or later (who have a Full Retirement Age of 67), the reduction for filing at 62 is the maximum possible reduction allowed by law.
The Worker’s Reduction
If you file at 62, your benefit is reduced by 30%.
- Example: If your benefit at age 67 would have been $1,000, filing at 62 reduces it to $700 for the rest of your life.
The Spousal Reduction
Spousal benefits take a bigger hit. While the maximum spousal benefit is 50% of the worker's benefit, claiming it at 62 results in a 35% reduction of that amount.
- Example: If the full spousal benefit would have been $500 (50% of the worker's $1,000), filing at 62 reduces it to just **$325**.
Here is the breakdown of the financial trade-off for early filing:
| Benefit Scenario | Full Retirement Age (67) | Early Filing (62) | % Reduction |
|---|---|---|---|
| Worker Benefit | $1,000 | $700 | 30% |
| Spouse Benefit | $500 | $325 | 35% |
2026 Tax Updates for Workers
For those who are still working, the new year brings a change to how much of your income is subject to Social Security payroll taxes.
The New "Taxable Maximum"
The Social Security Administration has raised the maximum amount of earnings subject to the Social Security tax to $184,500 for 2026.
- This is an increase from the 2025 limit of $176,100.
- What this means: If you earn more than $184,500 in 2026, you will stop paying into Social Security for the year once your earnings surpass that amount.
The Tax Rate Remains Steady
While the cap has risen, the actual tax rate withheld from your paycheck remains unchanged.
- Employee Rate: 7.65% total.
- 6.2% goes to Social Security (OASDI).
- 1.45% goes to Medicare (HI).
- Note: Unlike Social Security, there is no limit on earnings for the 1.45% Medicare tax. High earners (individuals over $200,000) also continue to pay an additional 0.9% in Medicare taxes.
Crucial Reminder: Medicare & Age 65
A common (and costly) mistake retirees make is assuming that because their "Full Retirement Age" is 67, they should wait until 67 to deal with Medicare. This is incorrect.
The 3-Month Window
Even if you decide to delay your Social Security cash benefits until age 67 or 70 to maximize your monthly check, you generally must still apply for Medicare benefits within 3 months of your 65th birthday.
The Cost of Waiting
If you miss this window, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost you significantly more money permanently.
- Part B Penalty: You may have to pay a late enrollment penalty for as long as you have Part B coverage.
- Coverage Gap: Delaying enrollment can also result in a delay of coverage start dates, leaving you uninsured during the gap.
Conclusion: Planning Your 2026 Strategy
The 2.8% COLA offers a welcome increase for current retirees, but for those still in the workforce or approaching age 62, the 2026 updates require careful planning.
Summary of Key Actions:
- Check Your Earnings: If you are under Full Retirement Age and working, ensure your 2026 income stays under $24,480 to avoid benefit withholding.
- Watch the Calendar: If you are turning 65 in 2026, mark your calendar for Medicare enrollment, regardless of when you plan to claim Social Security.
- Verify Your Statement: Log in to your my Social Security account to view your updated COLA notice and verify your earnings history.
