Working in Retirement: Earnings Test, Taxes, and Contributions

Retirement is rarely a hard stop anymore. Physicians take locum shifts, executives consult, business owners stay on after a sale, and plenty of people simply want a part-time role. Working in retirement is a sound decision for most people who want to do it. The complications come from how that paycheck interacts with Social Security, Medicare, taxes, and the retirement accounts you thought you were done funding.

The most common surprise is the earnings test, which can withhold Social Security checks entirely for someone who claimed early and then took a well-paid consulting contract. The second is the tax bill, since wages stack on top of benefits, pension income, and required distributions. The third, a pleasant one, is that earned income lets you contribute to retirement accounts again.

This guide covers each of those rules, plus the Medicare and pension questions that come with a return to work. It is educational rather than individualized advice. Social Security publishes the current earnings limits at ssa.gov, and our retirement planning work models part-time income alongside everything else.

The Social Security Earnings Test Explained

If you claim Social Security before your full retirement age (FRA) and keep working, Social Security applies an earnings test to your wages. FRA is 67 for anyone born in 1960 or later. Once you reach FRA, the test ends and you can earn any amount without affecting your benefit.

Before the year you reach FRA, Social Security withholds $1 of benefits for every $2 you earn above the annual limit, which is $24,480 for 2026. In the calendar year you reach FRA, a higher limit applies, $65,160 for 2026, and only $1 is withheld for every $3 over it, counting only earnings in the months before your birthday month. Both limits rise each year with wage growth.

What counts as earnings

Only wages from employment and net earnings from self-employment count. Pensions, annuity payments, IRA and 401(k) withdrawals, interest, dividends, capital gains, rental income, and unemployment benefits do not. Bonuses, severance, and deferred compensation are counted in the year they were earned rather than the year they are paid. Business owners should note that S-corp wages count but distributions do not, though Social Security expects the wages to be reasonable.

How the withholding works in practice

Social Security does not trim each check. It withholds whole monthly payments from the start of the year until the estimated excess is covered, then resumes. If you expect to earn $44,480 in 2026, that is $20,000 over the limit, so $10,000 of benefits would be withheld. With a $2,500 monthly benefit, you would receive nothing for four months and full checks the rest of the year. You report expected earnings in advance, and Social Security reconciles against your W-2 or tax return afterward.

The money is not gone

When you reach FRA, Social Security recalculates your benefit to remove the early-claiming reduction for every month that was fully withheld. Someone who claimed at 62 and had 24 months withheld is treated as if they had claimed at 64. The test is a deferral, not a penalty. Even so, claiming early while earning well over the limit usually makes little sense, because you take the permanent reduction on the months you do receive, then wait years for the adjustment. Our guide to Social Security claiming strategy covers when to file if work is in the picture.

A special monthly rule applies in the first year you retire mid-year. If you retire in September and earn nothing afterward, you can receive full benefits for the remaining months even though your annual earnings exceeded the limit.

Taxes on Social Security When You Keep Working

Wages do not reduce Social Security after FRA, but they raise the tax on it. The share of your benefit that is taxable depends on combined income: your adjusted gross income, plus tax-exempt interest, plus half of your Social Security benefits.

For joint filers, up to 50 percent of benefits become taxable once combined income exceeds $32,000, and up to 85 percent once it exceeds $44,000. For single filers, the thresholds are $25,000 and $34,000. These figures have not changed since 1993, so nearly every working retiree earning a professional wage lands in the 85 percent tier. The IRS explains the calculation in Publication 915.

Taxes are the same whether the benefit is your own, spousal, or survivor. Georgia does not tax Social Security, and residents 65 and older can exclude a large amount of other retirement income from state tax, with up to $4,000 of earned income counting toward that exclusion.

The new senior deduction

The 2025 federal tax law added a temporary deduction for taxpayers 65 and older, worth up to $6,000 per qualifying person for tax years 2025 through 2028, on top of the standard deduction. It phases out as modified adjusted gross income rises above $75,000 for single filers and $150,000 for joint filers. For a working retiree, part-time wages can be exactly what pushes income into the phase-out range, which is worth modeling before accepting a contract.

Withholding and estimated payments

Wages come with withholding, but Social Security benefits do not unless you request it on Form W-4V, and pension and IRA withdrawals often have too little withheld. Retirees who return to work frequently owe underpayment penalties in their first working year. Either raise withholding on the new paycheck or make quarterly estimated payments to the IRS and to Georgia.

Contributing to Retirement Accounts Again

Earned income is the key that reopens retirement accounts. Since the SECURE Act removed the age limit for traditional IRA contributions, anyone with wages or self-employment income can contribute to an IRA or Roth IRA at any age, up to the annual limit ($7,500 for 2026, plus a $1,100 catch-up at 50 and older) or the amount of earned income, whichever is less. Roth IRA eligibility still depends on modified AGI. A retiree with modest part-time income is often in a lower bracket than during their career, which makes Roth contributions and Roth conversions particularly attractive in those years.

Employer plans and solo plans

If the new job offers a 401(k) or 403(b), you can defer up to the annual elective limit ($24,500 for 2026) plus the catch-up ($8,000, or $11,250 for those 60 through 63). Check the plan's eligibility rules, since part-time employees sometimes wait a year. Consultants and locum physicians paid on a 1099 basis can open a solo 401(k) or SEP IRA and shelter both the employee deferral and a share of net profit. The IRS lists current limits at irs.gov. High earners with wages above the threshold must make catch-up contributions to a Roth account starting in 2026.

Spousal IRAs and HSAs

If one spouse works and the other does not, the working spouse's earned income supports an IRA contribution for both. And a retiree not yet enrolled in Medicare who is covered by a high-deductible health plan through the new employer can contribute to an HSA, deductible going in and tax-free coming out for medical costs.

Required Minimum Distributions and the Still-Working Exception

Required minimum distributions begin at 73 (75 for those born in 1960 or later). If you are still employed past that age, the plan of your current employer can delay RMDs until April 1 of the year after you retire, provided the plan allows it and you do not own more than 5 percent of the business. The exception covers only that employer's plan. IRAs, SEP and SIMPLE IRAs, and 401(k)s from former employers still require distributions on schedule.

One planning move follows directly: if the current employer's plan accepts rollovers, consolidating old 401(k)s and even IRAs into it can defer RMDs on the whole balance while you work. Owners of more than 5 percent cannot use the exception, and attribution rules count a spouse's ownership. Our guide to RMD rules walks through the calculation and the penalty for missing one.

Medicare, Health Coverage, and Pensions

A return to work can change your health coverage. If the new employer has 20 or more employees and offers a group plan, that coverage pays first and you can delay Part B or, if already enrolled, consider dropping it and re-enrolling later under a Special Enrollment Period. Dropping Part B is a serious step, since re-enrollment depends on having qualifying employer coverage without a gap. If the employer has fewer than 20 employees, Medicare stays primary and you should keep Part B.

Higher income from work also feeds the Medicare income-related surcharge two years later.

Returning to a former employer

Pension plans, especially public ones, often restrict re-employment. Georgia's Teachers Retirement System and Employees' Retirement System limit how much a retiree can work for a covered employer before benefits are suspended, and some private plans require a break in service before rehire. Read the plan's re-employment rules before accepting a role with a former employer or one in the same system.

Self-employment details

Consulting income brings self-employment tax of 15.3 percent on net earnings up to the Social Security wage base and 2.9 percent above it, and you keep paying into Social Security even while collecting. Additional years of earnings can raise your benefit if they replace lower-earning years in your top 35. Track expenses, consider an entity if income is substantial, and make quarterly estimated payments.

Working in Retirement: Putting the Rules Together

A few patterns cover most working retirees.

• Working before FRA and earning well above the limit: Consider delaying Social Security until you stop or slow down. You avoid the withholding hassle and the early-claiming reduction, and your benefit grows.
• Working after FRA: No earnings test. Focus on the tax stack: wages, benefits, RMDs, and the senior deduction phase-out. Use the paycheck to fund a Roth 401(k) or Roth IRA if your bracket is lower than it will be at RMD age.
• Consulting or locum income: Open a solo 401(k) early in the year, set aside money for quarterly taxes, and confirm whether the extra earnings change your Medicare premiums two years out.
• Working past RMD age: Ask whether the current employer's plan accepts rollovers so the still-working exception can cover more of your savings.
• Any age: Model how a few years of part-time income change the withdrawal rate on your portfolio. For many households, modest earnings in the early years of retirement are what make the rest of the plan comfortable.

Working in retirement is easier to manage than the rules suggest, as long as you know which ones apply to you. Before FRA, the earnings test decides whether claiming makes sense. After FRA, taxes and Medicare premiums are the moving parts. At every age, earned income gives you one more chance to fill tax-advantaged accounts. If you want help fitting part-time work into a retirement income plan, contact Attend Wealth.

Tony Colunga · Founder, Attend Wealth

Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, physicians, and business owners. Advisory services are held to a fiduciary standard. More about Attend