Reduced Social Security because of S-Corp income

[taxmandan]

This is not a tax question per se but more of a Social Security issue, but client asked so I thought I would try to find an answer. He wants to start collecting his Social Security when he turns 62 next month, he has about $12,000 in wages plus about $15,000 in S-Corp. profits each year. Is the S-Corp. money considered self-employment income when the SSA determines whether to reduce his payments for exceeding the $15,720 of other income? Or, is it investment income that is excluded from the calculation? I tried to find the answer but nothing comes up on-line, so I thought I would see if anyone has personal knowledge on this or where to find an answer at the SSA website or IRS website. SSA says net self-employment income will reduce payments, just not sure if the S-Corp. income outside of wages on his W-2 is included.

[TAXNJ]

Booklet or

This is not a tax question per se but more of a Social Security issue, but client asked so I thought I would try to find an answer. He wants to start collecting his Social Security when he turns 62 next month, he has about $12,000 in wages plus about $15,000 in S-Corp. profits each year. Is the S-Corp. money considered self-employment income when the SSA determines whether to reduce his payments for exceeding the $15,720 of other income? Or, is it investment income that is excluded from the calculation? I tried to find the answer but nothing comes up on-line, so I thought I would see if anyone has personal knowledge on this or where to find an answer at the SSA website or IRS website. SSA says net self-employment income will reduce payments, just not sure if the S-Corp. income outside of wages on his W-2 is included.

Your answer can be found by getting the 2016 Social Security booklet or on the SSA website. Look at collecting Social Security while working

[Roland Slugg]

Absolutely not. The salary he receives from his S Corp, as reported on a form W-2, is counted towards the annual pre-FRA earnings limit, but the rest is not.

Although you didn't ask, has your client thought carefully about commencing his SS benefit at age 62? For some people that's an economically foolish thing to do.

[kathyc2]

Roland is correct that only the wages count toward the earning test. However, depending on the circumstances of the S the 12K in wages may or may not be "reasonable".

[taxmandan]

Read the SSA brochure first, I know that sometimes definitions of what is considered "self-employment" or not can be different and just wondering if somewhere in the lexicon of SSA bureaucracy someone has reworked the rules to include all S-Corp. income as self-employment income and thereby screw over someone taking early SSA while still working.

Roland, yeah he's parsed out the decision to include some health issues that may reduce his chances of reaching his estimated life expectancy. He wants to avoid a 'gothcha' moment should the SSA make all of his income subject to the limits and lose out on some payments. I am of the same opinion as you, it shouldn't matter but wanted to see if anyone had experience to the contrary. Thanks for your take on it.

And the little work he does for the Corp. makes the $12k reasonable.

[Burke]

Read the SSA brochure first, I know that sometimes definitions of what is considered "self-employment" or not can be different and just wondering if somewhere in the lexicon of SSA bureaucracy someone has reworked the rules to include all S-Corp. income as self-employment income and thereby screw over someone taking early SSA while still working.

It's not SSA's call. This issue has been kicked around before by Congress but it would entail a change they probably aren't going deal with any time soon. Of course, the IRS can always audit the S-Corp and reclassify distributions as wages if they think it is warranted. And that would likely cause an issue for your client's early draw on his benefits. So, if $12K can be justified, sounds like he is ok.