There are three types of Social Security programs: retirement benefits, disability (SSDI) benefits and Supplemental Security (SSI) benefits. If you're planning to start a business, different steps and plans are required depending on which you're collecting. All recipients should prepare a solid, formal business plan that takes into account the effects that working while receiving benefits will have on their financial situation. Working while receiving benefits can also affect other benefits, such as Section 8 housing.
Social Security benefits are usually reduced a percentage for each dollar you earn, but there are some exceptions.
Social Security Retirement Benefits
Notify the Social Security Administration that you're starting a business. The SSA will make a special determination as to whether you're actually retired based on your income each year or based on the number of hours that you work in self-employment. This determination is not required if you've reached full retirement age, which is 66 for many people but depends on the year of your birth.
Next, prepare and file your IRS tax returns, including IRS Schedule C, by the April due date each year and report your self-employment income to the SSA. Completing Schedule C will determine your self-employment income. It's not necessarily the full amount of your business earnings because you can take deductions for business expenses. The SSA will take into account only your net income that's calculated and reported on IRS Schedule C.
The SSA will now calculate your new benefits monthly amount by deducting $1 from your benefits for each $2 you earn over above $17,040 until the year in which you reach full retirement age. The SSA will only deduct $1 for every $3 you earn over $45,360 in the year in which you reach full retirement age. And, of course, when you reach your full retirement age birthday, the SSA won't deduct anything from your benefits at all. These figures are accurate through 2018 but can change annually.
Social Security Disability (SSDI) Recipients
You can attempt to limit your self-employment net income to below $850 each month for nine months as of 2018, and work less than 80 hours per month. Your benefits will not be affected if you can do this. It's your "trial work period" and any earnings or hours under these amounts don't count toward any penalty or reduction in your benefits. The nine months don't have to be consecutive.
Beyond this trial work period, you can earn up to an average of $1,180 each month without affecting your Social Security benefits for a 36-month "extended period of eligibility." After your trial work period and your extended period have been fully used, the SSA will make a determination as to whether you've engaged in "substantial gainful activity." This determination can result in a possible ruling that you are no longer disabled and possible termination of your disability benefits.
As with retirement benefits, you'll want to prepare and file your IRS tax return, including IRS Schedule C, by the April deadline each year and report your Schedule C earnings to the SSA.
Supplementary Security (SSI) Benefit Recipients
SSI benefits are reduced by $1 for each $2 per month that you earn from net self-employment income over $65 as of 2018. If you're disabled, you can deduct from your income the costs of any disability-related items or services that you pay for. As with other forms of benefits, you must report your total earnings to the SSA each year.