Earnings Test
How Deferred Compensation Affects the Social Security Earnings Test
Verified against SSA POMS as of September 15, 2026
The short answer
Deferred Compensation includes wages earned in one period but paid later, which may affect the Earnings Test. If related to retirement, these payments are subject to specific rules under the Social Security Act. The SSA uses certain criteria to determine the impact on benefits.
Definitions of Deferred Compensation
Deferred compensation refers to wages earned in one period and paid at a later time. It includes both qualified plans, which are excluded from wages, and nonqualified plans, where payments may be credited as wages in the year services were performed or when there is no risk of forfeiture. RS 01401.060 details these distinctions.
RS 01401.060 View source ›Earnings Test Overview
The earnings test measures the extent of a person’s retirement and determines the amount to be deducted from benefits. This test does not apply if you are at Full Retirement Age (FRA) or if your work is not covered by Social Security outside the US, as stated in the Handbook section HBK 1801.
HBK 1801 View source ›Special Payments and Their Impact
Special payments, such as bonuses or vacation pay earned in a prior year, are excluded from earnings for earnings test purposes. The SSA considers these when adjusting benefits, as outlined in RS 02510.016.
RS 02510.016 View source ›Current Year Work Reports
Beneficiaries should report expected earnings that exceed the annual exempt amount. This includes any changes that could affect benefits payable. The reporting process and its importance for the earnings test are described in RS 02510.005.
RS 02510.005 View source ›Frequently asked
How does deferred compensation affect my Social Security benefits?
Deferred compensation may be counted as wages depending on the type of plan. For nonqualified plans, payments count when services were performed or upon the risk of forfeiture removal, affecting the earnings test.
What is considered a special payment?
Special payments are earnings attributed to services performed in a prior year or prior to entitlement to benefits, such as accumulated sick pay. They are excluded from the earnings test.
Do special payments count towards the earnings limit?
No, special payments like bonuses or vacation pay from previous years are excluded when calculating earnings for the Social Security earnings test.
When should I report changes in my work activity?
Report any material changes in work activity to the SSA as soon as possible, especially if it involves earnings earned in a prior period or special payments.
What is a grace year in context with Social Security benefits?
A grace year is the first year where you have a non-service month before reaching FRA, allowing you to receive benefits for months you don't exceed earnings limits.