Social Security & You: The Social Security earnings penalty for self-employed people

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“Well, Tom, you see, I’m a farmer. I got me about 100 acres of beans, and I really only work two months a year. I plant those beans in April and I harvest them in October. The rest of the…

and I harvest them in October. The rest of the time, I’m pretty much sitting on my butt. Oh, I mend a fence or two and work on my equipment. But that don’t take no 45 hours, so I want my Social Security check for the other 10 months of the year.”

People are also reading… Once you reach your full retirement age, these antiquated rules go away. But if you are under your full retirement age, and if you are still working, the retirement test law says this: “For every $2 you earn above a yearly limit , $1 must be withheld from any Social Security benefits you are due.” The law is called a retirement test because it’s intended to “test” whether you are retired and therefore whether you are eligible for retirement benefits.

Now, on the surface, the law seems pretty cut and dried. So, you may be wondering, “What’s the big deal? Why is this law such a problem?” In the first year you start drawing Social Security checks, a special monthly earnings test can apply. That test says that even if your yearly earnings exceed the annual earnings limit, you are due a Social Security check for any month you earn less than a monthly limit — which is always one-twelfth of the yearly amount.

As an example, let’s go back to Bob again who wants his Social Security to start in September 2022 when he will be 63 years old. But instead of working for wages, let’s say Bob owns a little mom-and-pop motel.

 

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