Comments on: Early Social Security: A way around the earnings limit

By: The guy

The guy — Mon, 14 May 2012 18:22:41 +0000

@JIM

You are %100 correct, but this is inmaterial in this case. What you
are refering to on a monthly basis is what SSA calls a LMETY (Last
Monthly Earnings Test Year), which you are able to use once. This is
done when it is in your favor to go monthly rather then yearly.
This does not matter because making $3000 a month and having the rest
of your income come in after your full retirement age will leave you
under the monthly or yearly limit. If thats the case hours or skill
level will not matter since limits were not exceeded.
Im sorry i wasnt more clear but trying to keep it simple.

By: Jim

Jim — Mon, 14 May 2012 17:32:31 +0000

To the Guy;

Your answer is not completely accurate. I have checked with SSA. Please note special rule that applies to my situation:

Some people who retire in mid-year have already earned more than their yearly earnings limit. That is why we have a special rule that applies to earnings for one year, usually the first year of retirement.

The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings. If you will
•
be under full retirement age for all of 2012, you are considered retired in any month that your earnings are $1,220 or less and you did not perform substantial services in self employment.

•
reach full retirement age in 2012, you are considered retired in any month that your earnings are $3,240 or less and you did not perform substantial services in self employment.

“Substantial services in self-employment” means that you devote more than 45 hours a month to the business or between 15 and 45 hours to a business in a highly skilled occupation.

By: The guy

The guy — Mon, 14 May 2012 16:41:50 +0000

It doesnt matter how many hours you worked. For someone within the
year of full retirement they look at the income from the begining of
the yeat (jan 1, 2012) to the last day of the month prior to the month
of your birthday. So if your birthday lets say is 07/25/12 they will
be looking at earnings from the 1st of the year to 06/30/12. From
July on you can make as much as you would like. The limit for someone
within the year of full retirement in the year 2012 is 38,880 for that
6 month period only, and for every 3$ over the limit they take a
dollar from a SSA check. You can make that 38,880 all in one month if
you wanted to and make $0 for the rest of the year it wont matter.

By: funny

funny — Mon, 14 May 2012 16:10:04 +0000

@ Jim: I have no idea. This is a question for a tax accountant. A good independent accountant doesn’t charge all that much, and the advice you’ll get is well worth the money. Ask friends and other small-business owners for references. When dealing with the IRS, it’s important to consult with a professional.

By: Jim

Jim — Mon, 14 May 2012 15:58:17 +0000

I have had an S Corp for 3 years. However I always paid myself via 1099 rather than W-2 wages and then file with Schedule C for FICA. This year I worked as an employee (W-2) of an unrelated Corporation strickly as their employee. Withholding all standard. Mid-year I was layed off.
I reach full retirement age this year and as such I can earn up to 3,240 a month before my benefit is reduced.
My S-Corp now has a new Corp-to-Corp contract and I will be drawing 3,000 a month (1099) with the rest as div distribution at end of year.

Does the fact that I take income as 1099 rather than w-2 matter in the either the dollar amount or hours work test (Highly skilled)?
In the past, I took 5,000/month in 1099 income.

By: linda

linda — Fri, 04 May 2012 23:32:29 +0000

Thank you for all of your advise. In real estate you have no control of annual income, maybe $10,000 one year and a much greater amount the next.
I will seek the advise of a tax accountant in this matter and hopefully a successful solution to this problem.

By: funny

funny — Fri, 04 May 2012 14:43:42 +0000

You certainly do have to be careful in using this device. In my case, the S-corp didn’t earn enough to matter — certainly not enough to support me or to arouse suspicions when the tax lawyer decided we could leave the first year’s draw in there to by way of continued capitalization of the miniature company. Because my teaching income was about $400 below the earned income limit, we decided to leave the S-corp’s first-year income in the corporation. But if it had earned more than a few dollars that year, from what I understood her to say, we would have had to draw a “salary” from it.

Entirely true about the HR folks. At GDU, by the time I and my crew were laid off, the university had already canned everyone in HR with enough seniority to be earning a decent salary. This meant remaining staff were low on experience. They seemed to have no idea what they were doing — no two people would tell you the same thing, and when you finally extracted what looked like a straight answer and took it to SS or to the state HR people, you’d be told the answer was wrong. At one large meeting of laid-off “retirees,” I learned from others that I was far from the only one who had that experience. Almost everyone there had similar war stories.

The whole mess is so staggeringly complicated that it really takes an expert to navigate it, whether that person is in HR or is an independent accountant.

By: The guy

The guy — Fri, 04 May 2012 13:51:37 +0000

Agreed! But I disagree with the not advertised part. Ssa can actually be very complex so to feed out information can be difficult. With special wages (extra sick or vacation pay) almost always the representation of your earnings are incorrect on your w2′s. What I’m saying is a lot of times the employer hr department will not fill out the work properly and when it reflects, the w2 will fail to show a break down of your yearly earnings. So in other words it looks like you worked the whole year and those were your earnings for the year.
As far as the corp.. you are right if your okay with a suspension of benefits and small investigation. I don’t blame ssa for it.. You can easily use it to control wages. Once everything clears they will pay out what is due.

By: funny

funny — Fri, 04 May 2012 12:17:50 +0000

True that. A “settlement,” depending on its source, may not be regarded as earned income. Or, if it was earned before you retired, it may not be counted against SS earnings begun after you quit the job — this was the case with my RASL pay (back pay for unused sick leave). But I had to get the SSA to sign on to that — they do have a provision to account for that situation, but they don’t advertise it.

If they decide you’ve out-earned the poverty-level income allowed, they will withhold payment of one or more SS checks. This is a problem if, like me, you were forced into early retirement during a severe recession when your savings were trashed and you needed to delay any drawdowns until the market recovered, because it will cause you either to further trash devastated savings or to go hungry. However, it does result in a small increase in benefits later (should you live that long).

Apparently if you continue to work after full retirement age (which you will have to do if SS is your main source of retirement income), they continue to add slight benefit increases. This has happened for me each year, despite the minuscule amount I earn.

The rules are mind-numbingly complex and the consequences of unwittingly violating them can be severe. This is why it is necessary to discuss your particular circumstances with a knowledgeable tax accountant.

By: funny

funny — Fri, 04 May 2012 12:07:19 +0000

Exactly so. It’s important to bear in mind that any income credited toward the S-corp has to have been earned by the S-corp; i.e., it has to be business income. If a check is made out to you personally, the bank will not deposit it in your S-corp’s account.