The Social Security benefits for W-2 income earners who continue to work and elect to receive benefits before their Full Retirement Age (FRA) are subject to the “Annual Earnings Test”. This means that their SS benefits will be reduced by $1 for every $2 earned over $15,720 in 2015. This is also true for self-employed individuals; however the “Substantial Services Test” is also applied when you are self-employed.

ss-self-employedBasically, self-employed individuals are considered still ‘employed’ and working, until they sell, leave their business or otherwise have no 1099 or other form of self employment income. The SS Administration (SSA) wants to make sure these individuals are truly retired and haven’t just tried to get around the income limit by taking a reduction in pay, paying a family member instead of themselves, or compensating themselves in another form such as large dividends or loan repayments. Therefore, in addition to the “Annual Earnings Test”, self employed individuals must not have performed what the SSA considers “Substantial Services”.

Generally, the SSA will look at the amount of time self-employed individuals devote to their trade or business and whether this is more than 45 hours during the month. Time spent includes the following activities, whether occurring at the place of business, the individual’s home, on the phone or elsewhere: