Brian Forsythe, Benefits Specialist, Resource Partnership
This BenePLAN tip addresses how Social Security determines income for someone who is self-employed. An individual relayed through our Help Desk that she was working various consulting jobs and believed she was using up her Trial Work Period before she could see whether or not she could manage a full-time job. Essentially this woman is self-employed, and this BenePLAN Tip will discuss how Social Security determines income when a beneficiary is self-employed.
Social Security uses the concept of Substantial Gainful Activity (SGA) to decide if an individual can continue to collect his or her check after the completion of the Trial Work Period. In most cases the amount used for SGA is $900 gross per month. When you are self-employed Social Security will use the figure of $900 net when making an SGA determination. What does net income mean as opposed to gross income? If you are self-employed, meaning you work as a contractor, consultant or have a small business, the IRS allows you to deduct your business expenses when reporting your income for tax purposes. If you are collecting SSDI, Social Security will do the same. Therefore, if you have business deductions they will not be counted as income for Social Security purposes.
Let’s look at some expenses that would be considered business deductions. First, if you have to travel for your business, your travel expenses will be deducted. The IRS currently allows 48.5 cents per mile for business travel. You can also deduct the cost of supplies, office rent or a portion of your rent or mortgage if you have a home office. In effect, if it is a legitimate business deduction for the IRS, it will be for Social Security as well. (For a full list of business deductions consult the IRS or your tax professional.)
Furthermore, Social Security will allow you to deduct an additional 15.3% of your monthly income to reflect the taxes that you have to pay as a self-employed individual. Additionally, there is another deduction that you can use, termed “unpaid help”. This is any unpaid service that you receive from an individual to help you run your business. For example, if a parent or a friend drives you to appointments because you cannot do so by yourself and they do not accept payment for their service, you can deduct an amount as if you were paying them.
Social Security will request to review your Schedule ‘C’ from your tax returns when you report your income to them. Schedule ‘C’ is how you report income and expenses to the IRS. Social Security will then calculate your past year income and estimate your next year income based on your Schedule ‘C’.
Please remember when you start any new job or venture it is in your best interest to let Social Security know what you are doing.
For more information on Self-Employment Income or how working may affect your Social Security benefits, contact Brian Forsythe, Benefits Specialist at brian@resourcepartnership.org or 508-647-1722 ext. 14.
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