Does Social Security Use The $17040 Exempt Amount AND Hours Worked If You're Self Employed?

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Sep 29 2018 - 5:56am

Earnings Test: Are they using earning exempt amount of $17,040, AND hours worked if you are a self employed 1099, even if you made under the earnings limit of $17,040 so far in 2018 ? Like you mentioned I believe Earning limit only test if below $17,040. Why is there so much mis information out there ? They never mention where they found this self employment rule. I think this is the rule which applies if you are over $17,040 , not under.

Below is what an article I found on the web states:
If you are self-employed and you claim early retirement benefits from Social Security (any time between age 62 and your full retirement age), your benefits may be reduced if you’re performing “substantial services,” even if you’re not making income over the allowed limits.
The article then goes on to say…
The reason Social Security has a special rule for small business owners is that some people with their own businesses try to get around the income limit by continuing to work and paying a relative instead of themselves, or by continuing to run the business but being paid only for reduced work time to stay under the limit. (This is true even though any reductions taken from your retirement benefits for working are paid back to you over a 10-15 year period after you reach full retirement age.
Self-Employment Rule
The rule is that if you are self-employed, you can receive full benefits for any month in which you Social Security considers you retired. To be considered retired, you must not have earned over the income limit and you must not have performed what Social Security considers substantial services.

The usual test for substantial services is whether you worked in your business more than 45 hours during the month, subject to some exceptions. For instance, if you worked between 15 and 45 hours per month and the work you did could be considered highly skilled, your work could be considered substantial services (more on this below). But if you worked less than 15 hours, in no case will you be considered to have performed substantial services (you are considered retired, period).
When considering when services are substantial, Social Security will look at the following factors:
• amount of time the individual devoted to the business
• nature of the services performed
• nature of the services performed by the individual before retirement and after
• type of business involved
• presence or absence of an adequately qualified paid manager, partner, or family member who manages the business, and
• amount of capital invested in the business.

Hi,

No. The 45 hours of work test only applies to the monthly retirement test, not the annual earnings test. The monthly test and the annual test are 2 completely independent tests, and either can be used in your initial calendar year of entitlement to reduced Social Security benefits. Whichever test ends up being more advantageous to the beneficiary would be used.

In the article quoted in your question, the statement that says 'If you are self-employed and you claim early retirement benefits from Social Security (any time between age 62 and your full retirement age), your benefits may be reduced if you’re performing “substantial services,” even if you’re not making income over the allowed limits', the 'allowed limits' they are referring to is the monthly limit of $1420, not the $17,040 that only applies to the annual earnings test for 2018.

For example, say Bob is a real estate agent who retires at age 62 in July 2018. Bob has already earned more than $100,000 in the first 6 months of 2018, but will not be doing any work starting in July. Bob can be paid all of his Social Security benefits for the months of July through December based on the monthly retirement test (https://www.ssa.gov/planners/retire/rule.html).

On the other, say John is farmer who files for his Social Security benefits at age 62 in January of 2018. John is continuing to farm, but even though he's working well over 45 hours in all months he suffers a net loss from his business due to poor farming conditions. John can be paid all of his Social Security benefits for 2018 as long as his net earnings for the year end up being no more than $17,040 regardless of how many hours he works. Social Security would simply use the annual earnings test rather than the monthly test in John's case (https://www.ssa.gov/planners/retire/whileworking.html).

Best, Jerry