What type of earnings are included in the earnings test for Social Security benefits?

The earnings test for Social Security benefits primarily takes into account earned income. Earned income refers to wages or self-employment income that individuals earn from working. This includes salaries, tips, and net earnings from self-employment. The purpose of the earnings test is to determine how much an individual's benefits may be reduced if their earnings exceed a certain threshold while drawing Social Security benefits before reaching full retirement age.

Rental income, capital gains, and dividends do not count as earned income. Rental income is typically considered unearned income, as it does not stem from active work. Similarly, capital gains arise from the sale of investments and do not involve direct labor or services performed. Dividends, which are a portion of a corporation's earnings distributed to shareholders, also fall under the category of unearned income. Thus, only earned income is factored into the earnings test, making it crucial for individuals to understand what constitutes earned income when assessing their Social Security benefits and any potential reductions based on their work-related earnings.