Hi,
I am self-employed. My company is a S Corp. Right now I'm paying myself $90k a year but I take several bonuses during the year which are not included in my paycheck. Should I pay myself the max allowed so my benefits will be increased or will the bonuses which "pass thru" count towards my benefits? I am 59 and would like to retire at 65 even though my FRA is 67.
Hi. The only types of income that can be used to calculate Social Security retirement benefits are wages and self-employment income on which you pay Social Security or self-employment taxes. Therefore, any income that you receive from your business that you don't report as either wages or self-employment earnings won't be used to calculate your benefit rate.
The important thing to know, though, is that you aren't supposed to manipulate the amount that you pay in Social Security taxes by either over or under reporting your earnings. Many people form Subchapter S corporations as a means to underpay Social Security taxes by misreporting earned income as unearned income on their tax returns (e.g. paying themselves in the form of dividends vs. wages). Doing that is just as improper as artificially inflating your reported earnings by misreporting unearned or passive income as wages or self-employment earnings.
The bottom line is that Social Security retirement benefit rates are based on an average of a person's highest 35 years of Social Security covered wage-indexed earnings. Increasing your earnings for a relatively few years prior to your retirement can help raise your benefit rate somewhat, but a few high earnings years aren't likely to dramatically increase your high 35 year average and your resulting benefit rate.
Our software (https://maximizemysocialsecurity.com/purchase) allows users to input projected future earnings so that they can determine the effect that those earnings will have on their future Social Security retirement benefit rate. You may want to strongly consider using the software to do your Social Security planning.
Best, Jerry
