Hi Larry, I am a retiring in less than a year at 66 1/2 and draw my SS benefits, my wife will be 63, we have a disabled son, and we get paid for his cares through Wisconsin Medicaid waiver program, the income does not count as federal or state income -therefore no taxes are paid on this income of $26,000 for each of us, however SS taxes are withheld. My question is - my wife is planning to take early SS benefits to cover her health insurance costs -but it depends on whether or not the income from the waiver program counts against her SS benefits - since the income does not count for tax purposes -does it count as earned income against her SS benefits -on the 1040 tax form it does not show up as earned income. Thanks…

Hi. I'm not familiar with the specifics of Wisconsin's Medicaid waiver program, but if Social Security taxes are being withheld from the income you receive from that program then the income is apparently classified as wages for services you provide. Wages are considered as earned income, so if you and/or your wife receive a W-2 form showing that Social Security taxes were withheld then that income will count as earnings for purposes of the Social Security earnings test(https://www.ssa.gov/benefits/retirement/planner/whileworking.html).

Even if the income you receive is exempt from income taxes, that does not necessarily exempt it from counting for earnings test purposes. Social Security regulations are separate and distinct from IRS regulations.

Best, Jerry