Ask Mary Beth: Money Q & A |
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Social Security Cap Curbs Earnings
My wife and I plan to retire at 62 and start a small business. What is the most we can earn from the business without jeopardizing our Social Security benefits?
Mary Beth answers:
In 2002, individuals who have not yet attained age 65 can each earn up to $11,280 without jeopardizing Social Security benefits. If you earn more than that, you will lose $1 in Social Security benefits for every $2 you earn over the limit.
There is good news for anyone planning to work between ages 65 and 69. In April 2000, President Clinton signed into law a bill that allows seniors to work until age 70 without penalty. Prior to that signing, seniors lost $1 for every $3 they earned over the imposed limit.
The law was enacted retroactively to January 2000.
Once you turn 70, the earnings cap disappears. In addition, the earnings cap does not include pensions, annuities, investments, interest, and veteran or government benefits.
Keep in mind that as a self-employed businessman, you will have to pay Social Security taxes on your earnings at double (15.3%) the normal rate (7.65%) since you are contributing both the employer and employee share for yourself. However, you can file for deductions on your income tax to make up for the higher tax. If your wife is your employee, she will only have to pay the employee share of 7.65 percent. (3/00)
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