Maximum SS Earnngs- SE Loss

[peanut]

Does anyone know how the reduction in SS benefits before retirement work if there is SE loss? Example suppose there is $20000 in W-2 earnings but also have A $ 30000 SE loss---- are these two netted so there is no reduction in SS benefits under retirement age or is only the $ 20000 used---thus will have to repay the benefits.
Thanks

[Jiggers]

SE loss vs W-2

The SE loss does not net to the W-2 income.

Sorry.

[Zee]

The SE loss does not net to the W-2 income.

Sorry.

I disagree. I went through this last year for a client.

Schedule C Income is counted, and losses are deducted. But, it isn't easy. SSA uses W2 income because they don't receive information from the IRS on self-employment income until a couple of years later. So, when your client receives a letter reducing his benefits, he'll need to appeal and visit the local office and once there be prepared for a lengthy conversation. The folks at the SSA office most likley won't understand and it will take some time to convince them.

Does this mean there's a "glitch" and those earning substantial SE income and no W2 income will still receive their full social security amount? I'm not sure. But, my guess is there isn't a matching later and it's a hole the SSA hasn't closed.

[Bees Knees]

Section 404.429 of the Social Security Regulations:

(a) General. The term "earnings" as used in this subpart (other than as a part of the phrase "net earnings from self-employment") includes the sum of your wages for services rendered in a taxable year, plus your net earnings from self-employment for the taxable year, minus any net loss from self-employment for the same taxable year.

http://www.socialsecurity.gov/OP_Home/cfr20/404/404-0429.htm

[Bees Knees]

An exception to this is a year when net losses exceed net earnings.

If you look on your earnings statement from Social Security, any year your net losses exceed earnings, that year counts as a zero year. Net losses do not reduce net earnings from other years. You also have the option to use the optional method so that you can earn Social Security credits in net loss years. See TTB page 5-24.

[Zee]

Quote:
(a) General. The term "earnings" as used in this subpart (other than as a part of the phrase "net earnings from self-employment") includes the sum of your wages for services rendered in a taxable year, plus your net earnings from self-employment for the taxable year, minus any net loss from self-employment for the same taxable year.

Bees-

Now, I'm confused. I'd like it much better if there was the word "or" before the word "minus" such that it read "or minus any net loss from self-employment for the same taxable year.

If I read this literally, it would seem that a loss would only be deductible if there were more than one SE business (one with an income and one with a loss).

The SS office did not reduce my client's SS amount for excess wages.

It doesn't make sense (but, that wouldn't be a surprise) that a loss wouldn't be allowed to offset W2 wages, but is that the way you read it?

[Bees Knees]

To me, it means a net loss from self-employment can reduce earnings from a W-2 wage.

Wages for services rendered in a taxable year
+
Net earnings from self-employment for the taxable year
-
Net loss from self-employment for the same taxable year
=
Earnings

Eaxample: Assume W-2 wages of 50,000, Schedule C #1 net profit of 20,000, Schedule C #2 net loss of 30,000.

50,000
+
20,000
-
30,000
=
40,000

[Zee]

Thanks Bees-

That's the way I interpreted it, and the way it was finally handled for my client. But, as I cautioned, it wasn't an easy task and required a visit to the SSA office (which is a PITA). I went with my client, and had to see two Supervisors before I got them to agree an adjustment wasn't necessary for excessive earnings.

Again (repeating my earlier post) the Supervisor's told me adjustments are based on the W2's because they don't receive Schedule C information, or full tax information for comparison. If that's true, the adjustment is based on an automated letter simply comparing W2 information with the maximum earnings before reduction and would create a big "hole" in the system. The SSA did not have the Schedule C information in our local office for my client, I brought in tax returns.

[Bees Knees]

Interesting law.

$50,000 of W-2 earnings.

$10,000 of net Schedule C losses.

= $40,000 of Social Security earnings credit to the individual.

Yet the individual and employer both paid 7.65% FICA on the $50,000 of W-2 income.

Fair?