I am 62 and have (100%) owned an S Corporation since 1994. My wife is 67 and began collecting SS in 2011. Recently, my wife began working with me and, in 2014, we split the ownership 51%/49%. Let's say the corporation has net income of $26,314 and I pay myself a $3,500 salary; my wife a $3,500 salary and take draws (not dividends) from the corporation. This is our only source of income. Questions: (1) I understand the concept of earned income. If I apply for SS now, how will SS determine my income for purposes of the $16,920 earnings limitation; (2) Since our income is seasonal, how does SS track the income (i.e. monthly or annually) or do they simply access IRS documents? Thanks.

Hi,

Countable income for purposes of the Social Security earnings test is any combination of gross wages and net earnings from self-employment. Your wife's wages wouldn't count toward your limit, and there's no limit on what she can earn since she's already over full retirement age.

I don't know how you report the 'draws' that you refer to, but if you report them as self-employment under your Social Security number and pay self-employment taxes, that income will count toward the earnings test (https://www.ssa.gov/planners/retire/whileworking2.html). The $16,920 limit is a calendar year limit, but there is an alternate monthly retirement test that can be used in the first year of a person's entitlement to Social Security benefits, and if the monthly test is more advantageous. For more information on the monthly test, refer to Social Security's website: https://www.ssa.gov/planners/retire/rule.html.

Social Security directly receives copies of W-2 forms submitted to the IRS, and the IRS notifies Social Security of amounts reported as net earnings from self-employment. Obviously, though, those reports are received after the year in which the income was earned, so they are only used for enforcement purposes. Social Security initially relies on what a beneficiary reports as their expected earnings when determining whether or not to withhold benefits for earnings test reasons.

Best, Jerry