Social Security earnings test and restricted stock unit vesting for a 64-year-old retiree, Digi Mart USA News: Picture a 64-year-old who already receives about $2,000 a month from Social Security. He takes a job offer that includes a $40,000 salary plus $100,000 in restricted stock units (RSUs), shares the company promises to hand over in pieces as long as he stays.
He assumes stock he hasn’t sold cannot affect his checks, but that assumption is wrong.
Grants like this are common. On November 6, Vera Therapeutics (NASDAQ:VERA) announced incentive grants to new hires, including RSUs that vest over four years, with 25% of the underlying shares vesting on each anniversary of November 20, 2026. The worker in this article is a composite and is not one of those hires, but his grant works in the same way.
He would not be alone. One early retiree told a Social Security advice column she “had no idea that Restricted Stock Units… would be included in my W2 as total wages.” She then faced an overpayment of $4,163.
RSUs earned through ongoing work generally become compensation when they vest and the shares are delivered. They are valued at that day’s share price, whether he sells or holds.
Federal tax law counts property received for services as income once it is no longer subject to a substantial risk of forfeiture. Stock options work differently, with income usually arising when the option is exercised or later, so the vesting date of options does not trigger it.
Social Security’s earnings test generally counts wages from current work. The stock reported as wages on his W-2 will generally count toward the earnings test if it compensates him for work performed while he is collecting benefits.
A $100,000 grant can turn into taxable earnings gradually as shares vest over several years. On a four-year schedule, about a quarter vests each year.
The dollar amount depends on the share price on vesting day, so the grant-date value can be off in either direction.
Say one $25,000 portion vests in 2027 on top of his $40,000 salary. If the full $65,000 counts toward that year’s earnings test, his benefits of $24,000 a year could be largely withheld.
Social Security generally withholds whole monthly checks, so about 10 of his 12 payments could stop. Withholding can never exceed the benefits he is owed, but in this case it would take most of them.
His salary alone would still exceed the limit, which by itself would mean about $7,220 withheld. The stock portion is what turns a manageable trim into most of a year’s checks.
The date on the W-2 is only part of the picture, because Social Security looks at when the work behind a payment was done. Payments that arrive after retirement for work completed before retirement generally do not count against the limit.
If he stops working and shares later vest for work he completed before claiming Social Security, plan documents could support excluding them from the earnings test. Many plans cancel unvested shares when an employee leaves, however, so he should check his grant agreement first.
Withheld benefits are not simply paid back in a lump sum. Full retirement age is 67 for anyone born in 1960 or later.
At that point, earnings no longer reduce benefits, and Social Security recalculates the monthly payment to account for the months withheld. Later checks become larger, but that does not help him cover bills in 2027.
The stock also affects taxes. Up to 85% of benefits can become taxable once half of benefits plus other income exceeds $34,000 for a single filer, and a vesting year can easily push him past that threshold.
Before the first shares vest, he should add his salary to a realistic estimate of the vesting value and report that figure to Social Security. A good estimate lets the agency adjust checks during the year.
A low estimate can lead to an overpayment letter later, like the one that surprised the retiree described above.
If he considers leaving before the grant fully vests, he should ask HR in writing what happens to unvested shares. He should also keep documents showing which period of work each portion pays for, because that record supports a special-payment claim.
His unsold shares can be valuable pay and a cash-flow problem at the same time. The share price on vesting day, his birth month and how Social Security determines each payment can each change the result, so his own documents matter more than any general rule.
