Social Security timing question - do S-Corp distributions count as earned income for retirement benefits?

S-corp distributions are NOT earned income for Social Security purposes! Only actual wages reported on W-2 are counted for the earnings test. Distributions are considered a return on investment, not earnings. So if you're not taking a salary and only getting distributions, you won't trigger the earnings test limit. As for waiting, the 8% per year increase from FRA to 70 is pretty substantial. Since you mentioned your benefit is higher than your husband's, it might make sense for you to delay to 70 if possible, especially if you have longevity in your family. That way, whoever lives longer gets the maximum benefit.

r u SURE about that?? my brother in law has an s-corp and SSA counted his distributions when they calculated his earnings test last year. he had to pay back some benefits!

I went through almost exactly this situation! The previous answers are mostly right - S-Corp distributions themselves aren't earned income for the earnings test. HOWEVER, the IRS and SSA look closely at S-Corps where owners work but take minimal/no salary while taking large distributions. They can reclassify those distributions as wages if they think you're trying to avoid payroll taxes. If you're truly not working in the business anymore, it's fine to just take distributions. But if you're still involved in operations and taking no salary, that could be problematic. For the claiming strategy - with your numbers, I'd suggest you wait until 70 and have your husband claim at his FRA. That way you maximize your benefit (which becomes the survivor benefit if you pass first) while still getting some income from his benefit sooner.

The previous replies cover the S-Corp question well, but I want to add something about maximizing your combined benefits. Since your benefit is substantially higher, another strategy to consider: 1. Your husband could file for his benefits at 64 (now) 2. You could file a restricted application for SPOUSAL benefits only (available to people born before Jan 2, 1954) 3. This lets you collect 50% of his FRA benefit while letting YOUR retirement benefit grow until 70 4. At 70, switch to your maximum benefit This works ONLY if you were born before that 1954 cutoff date. If so, it's free money while you wait to maximize your own benefit.

My brother tried to claim SS while taking s-corp distributions and it was a NIGHTMARE!!! They kept sending confusing letters and every time he called SS he got different answers and waited on hold for HOURS. Some agents said distributions count, others said they don't. Took him 8 months to straighten out!!! The whole system is designed to confuse older people I swear

Just want to clarify something that others have hinted at but not directly stated: the SSA and IRS don't always see eye-to-eye on S-Corp distributions. IRS is primarily concerned with proper tax collection. SSA is looking at what constitutes earnings for benefit calculations. In practical terms, this means that while distributions aren't counted as earnings for the Social Security earnings test, there's a separate issue of whether your compensation structure is reasonable. If you're not truly retired from the business, the IRS could challenge your lack of salary. It gets complicated fast!

I really appreciate everyone's insights here! After reading all your responses, I'm leaning toward claiming at 70 to maximize my benefit. I'll also talk to my accountant about setting up a small salary for the limited consulting work I still do for the S-Corp, just to be safe with the IRS. For anyone reading this later with a similar question - it seems the short answer is: S-Corp distributions do NOT count as earned income for the Social Security earnings test, but make sure your overall compensation structure is reasonable if you're still involved in the business at all.

Great summary! One additional point to consider - since you're planning to wait until 70, make sure to apply for Medicare Part A and B when you turn 65 (even though you're not claiming Social Security yet). Many people don't realize that Medicare enrollment isn't automatic if you delay Social Security benefits, and missing the initial enrollment window can result in permanent late penalties. Also, if your S-Corp provides health insurance, you'll want to coordinate that transition carefully. The Medicare decision is separate from your Social Security timing strategy, but it's easy to overlook when you're focused on optimizing benefits.