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dylatess, ATTORNEY
Category: Social Security
Satisfied Customers: 3441
Experience:  37 plus years of SSD practice
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If an employee is receiving early social security benefits

Customer Question

If an employee is receiving early social security benefits there is a limit to the amount of wages the employee can receive without suffering a reduction in benefits. If my income from wages exceeds the limit imposed by social security, can I subtract the amount of loss from self-employment from the wages I received from my employer, so as not to cross over the threshold limitation?
Submitted: 3 months ago.
Category: Social Security
Expert:  emc011075 replied 3 months ago.

Hi. My name is ***** ***** I will be happy to help you.

You can be employee and self-employed at the same time as long as you have two separate sources of income: W2 and 1099Misc. Social security will use your gross earnings and/or net profit from self-employment. Your self-employment loss will not reduce your W2 earnings.

Customer: replied 3 months ago.
Thank you for your response. However, I have a letter from the Social Security Administration that says, "If you were self-employed and had a net loss, we can subtract the amount of the loss from your wages for that year." This is a direct response regarding a situation where my w-2 wages exceed the threshold by a few thousand dollars. Being able to net my W-2 wages against a self-employment loss would wipe out the overage. This seems to contradict your view. Am I missing something here?
Expert:  emc011075 replied 3 months ago.

I am sorry, I am confusing you. What I said applies to disability benefits and you said you are taking early benefits.

Yes, at the end of the day your earnings is total of your W2 income + any income or losses from activities subject to self-employment tax. However, depending how often your employer is required to report FICA taxes (withholding for social security and Medicare tax), social security may still cut your benefits because your self-employment loss will not be reported to social security until summer of the following year - after you file your tax return and the IRS will process the information. The good news is that social security is also not very efficient when it comes to processing payroll data, even though most of the quarterly payroll returns are filed electronically these days.

And the IRS will allow you to claim losses for two strait years and in the third year, if you claim losses again, you will get audited. If for any reason the IRS disallows part of all of your loss, the social security will be notified as soon as you receive your first notice.

You have 3 years, 3 month and 15 days after end of the year to correct your social security records. If social security pays you retroactively you may also need to amend your tax return because some of your benefits may be subject to income tax, especially if your earnings are close to the maximum amount allowed.