There is a special earnings rule for cases like this.
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 2016, you are considered retired in any month that your earnings are $1,310 or less and you did not perform substantial services in self employment.
reach full retirement age in 2016, you are considered retired in any month that your earnings are $3,490 or lessand 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.
Example: ***** ***** retires at age 62 on June 30, 2016. He earned $37,000 before he retired.
On October 5th, John starts his own business. He works at least 15 hours a week for the rest of the year and earns an additional $3,000 after expenses. His total earnings for 2016 are $40,000.
Although his earnings for the year substantially exceed the 2016 annual limit ($15,720), John will receive a Social Security payment for July, August and September. This is because he was not self-employed and his earnings in those three months are $1,310 or less per month, the limit for people younger than full retirement age.
John will not receive benefits for October, November or December 2016 because he worked in his business over 45 hours per month in all three months.