Workers whose income exceeds annual maximum taxable earnings no longer have to pay Social Security taxes on earnings above the maximum amount. However, those who continue to work after claiming Social Security for early retirement have their benefits reduced if they make more than the yearly earnings maximum.
The normal Social Security tax on earned income is 12.4 percent as of 2015, half paid by an employee and half by an employer, or all paid by a self-employed individual. Once a worker's yearly income reaches the maximum taxable earnings limit of $118,500 in 2015, the Social Security tax no longer applies, although workers still have to pay the Medicare tax, which has no earnings limit.
Those who choose to initiate Social Security benefits early, from age 62 until full retirement age, face a reduction of benefits if they continue working and their income exceeds a maximum earnings limit. Until the year they reach full retirement age, Social Security deducts $1 in benefit payments for every $2 they earn above the allowable annual limit of $15,720, as of 2015. In the year they reach full retirement age, they lose $1 for every $3 earned above the maximum limit of $41,880 until the month they reach full retirement age. After workers reach full retirement age, Social Security takes no further reductions, no matter how much they earn.