Q. I just received notice of over payment of Social Security benefits. Can you explain what this is all about? I've continued to work and pay into Social Security. Shouldn't my benefits increase?
A. The most frequent cause of a Social Security overpayment notice is excess earnings. Until full retirement age, Social Security law imposes an earnings limitation on persons receiving benefits. In effect, the limitation is a rough measure as to whether the applicant for retirement benefits has actually retired. In the first year of retirement, a monthly retirement test is used. In 2013, the monthly test is $1,260. Once benefits begin, no benefit whatsoever is payable if monthly earnings exceed the monthly limit. Even in the first year of retirement, the annual earnings limitation can be used if it permits more months of benefits to be paid. In 2013, the annual limitation is $15,120. Each $2 in earnings over the limit requires the Social Security Administration is to withhold $1 in benefits.
Overpayments stemming from excess benefits must be repaid either by a refund or by a reduction in future benefits.
An automatic recalculation takes place each year when new earnings are credited to a retiree's earnings record. If a year of new earnings exceeds a year of indexed earnings used in determining the initial benefit, monthly benefits increase. The increase takes place in November, but the benefit increase is retroactive to the previous January.