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.

This is such a helpful thread! I'm in a similar situation as an S-Corp owner approaching retirement. One thing I wanted to add that might be useful - if you do decide to take a small salary for your consulting work (which sounds like a smart move), make sure your accountant helps you document that the work you're doing justifies that salary amount. The IRS has been scrutinizing S-Corps more closely lately, especially when there's a big disparity between salary and distributions. Having clear documentation of your reduced role and the market rate for that level of consulting can protect you if they ever question your compensation structure. Also, since you mentioned your husband is still working full-time, don't forget that his continued earnings might affect his Social Security benefits calculation if he's earning more now than in previous years. The SSA uses your highest 35 years of earnings, so if he's having high-earning years now, it could actually boost his eventual benefit amount.

This has been incredibly informative! As someone approaching 62 with a small S-Corp, I'm taking notes on all of this. One question I haven't seen addressed - if Kennedy does decide to take a small salary for her consulting work, would those wages count toward the earnings test if she claimed Social Security before her FRA? It sounds like she's planning to wait until 70 anyway, but I'm curious about this scenario since I might face a similar choice. If someone has minimal S-Corp wages (say $10-15k annually for light consulting) but significant distributions, would only that small salary amount be subject to the earnings test limits? Also, thank you to everyone who shared the Medicare enrollment reminders - that's definitely something I need to research more as I get closer to 65!

This thread has been incredibly helpful! I'm dealing with a similar situation as a 66-year-old S-Corp owner. One thing I wanted to add that might be useful for Kennedy and others - when I was researching this last year, I found that the SSA has a specific publication (SSA-05-10069) that addresses self-employment income and Social Security benefits. It specifically mentions that S-Corp distributions are treated differently from wages for earnings test purposes. Also, regarding the strategy discussion - Kennedy, you might want to run some break-even analysis on waiting until 70 vs claiming now. While the 8% annual increase is substantial, if you're in good health and could invest the earlier payments, the break-even point might be different than you expect. A fee-only financial planner who specializes in Social Security optimization could help you model different scenarios. One last tip from my experience - keep detailed records of your transition from active business owner to passive investor. If the IRS ever questions your compensation structure, having clear documentation of when and how your role changed will be invaluable.

As a newcomer to this community, I'm amazed by the depth of knowledge shared here! I'm 63 and own a small consulting S-Corp, so this discussion is incredibly timely for me. One thing I haven't seen mentioned yet - if you're still contributing to a SEP-IRA or Solo 401(k) through your S-Corp, those contributions can also affect your tax planning around Social Security benefits. Since Social Security benefits can become taxable once your combined income reaches certain thresholds, the timing of retirement account contributions and distributions becomes another layer to consider alongside your claiming strategy. Kennedy, given your situation with distributions and the potential for a small consulting salary, you might want to model how different scenarios affect not just your Social Security benefits, but also the tax implications of those benefits once you start receiving them. Sometimes the "optimal" claiming strategy from a pure benefit maximization standpoint isn't the best when you factor in the total tax picture. Thanks to everyone for sharing such practical, real-world insights. This is exactly the kind of peer-to-peer knowledge sharing that makes these decisions less overwhelming!

As someone who's been helping folks navigate Social Security and S-Corp issues for years, I wanted to add a few practical points to this excellent discussion: First, Kennedy, you mentioned taking quarterly distributions - make sure you're paying estimated taxes on these if you haven't already set that up. The IRS expects quarterly payments on S-Corp income, and underpayment penalties can add up. Second, regarding the "reasonable compensation" discussion - the IRS has safe harbor guidelines suggesting that if you're working less than 20 hours per week in the business, minimal or no salary might be acceptable. Your 5-10 hours monthly consulting sounds like it would fall well within this range, but documenting those hours is key. Finally, one strategy some of my clients have used successfully: if you do implement a small salary for your consulting work, consider timing it strategically. You could potentially take salary in years when you need to boost your Social Security earnings record, and rely more heavily on distributions in years when you want to minimize earned income. The combination of all the advice here - waiting until 70, taking a minimal but reasonable salary for actual work performed, and getting professional tax planning help - sounds like a solid approach for your situation.

As someone new to this community, I want to thank everyone for such an incredibly thorough discussion! I'm 65 and in a somewhat similar situation as an S-Corp owner, though I'm still more actively involved in operations. One thing that struck me from reading all these responses is how critical the documentation aspect seems to be - whether it's documenting your reduced role in the business, keeping records of consulting hours, or maintaining evidence of reasonable compensation decisions. It sounds like having a clear paper trail is just as important as getting the tax and Social Security strategies right. Kennedy, your original question has generated such valuable insights that go way beyond just the S-Corp distribution issue. The Medicare enrollment reminders, the tax implications of combined income, the break-even analysis suggestions - this thread is like a masterclass in retirement planning for business owners! I'm curious if anyone has experience with how SSA handles the transition period when you're stepping back from active business involvement? Is there a formal way to notify them of your changing role, or do they only look at this if questions arise later during an audit or review? Thanks again to everyone who contributed their knowledge and experience here. This is exactly the kind of peer support that makes complex decisions feel more manageable!

As a newcomer to this community, I'm incredibly grateful for this comprehensive discussion! I'm 62 and own a small S-Corp, so Kennedy's question has provided a wealth of information that's directly applicable to my situation. What really stands out to me is how this thread has evolved from a simple question about S-Corp distributions and Social Security into a complete roadmap for business owners approaching retirement. The key takeaways I'm noting are: 1. S-Corp distributions don't count as earned income for Social Security earnings test purposes 2. But they DO count toward combined income for determining if SS benefits become taxable 3. Documentation of your changing business role is critical for both IRS and future reference 4. Medicare enrollment is separate from Social Security claiming and has its own deadlines 5. The interaction between all these factors makes professional guidance valuable Kennedy, your situation has generated such practical, actionable advice. I'm particularly appreciative of the specific publication references, the 20-hour safe harbor guideline, and the reminder about estimated tax payments on S-Corp distributions. For others in similar situations reading this later - this thread demonstrates why it's worth seeking out communities like this where people share real-world experience alongside professional insights. The combination of personal experiences and technical knowledge has made a complex topic much more approachable. Thank you to everyone who contributed their expertise and time to help not just Kennedy, but all of us navigating similar decisions!

As a newcomer to this community, I'm blown away by the depth and quality of advice shared here! This thread has become an incredible resource that goes far beyond Kennedy's original question about S-Corp distributions. What I find most valuable is how everyone has emphasized the interconnected nature of these decisions. It's not just about Social Security timing or just about S-Corp tax strategy - it's about how all these pieces work together. The reminder about Medicare enrollment deadlines, the tax implications of combined income, and the importance of proper documentation are all critical considerations I wouldn't have thought of initially. Kennedy, your situation perfectly illustrates why business owners face such unique retirement planning challenges compared to traditional employees. The flexibility of S-Corp structures can be advantageous (like avoiding the earnings test with distributions) but also requires careful navigation to stay compliant with both IRS and SSA rules. For anyone else reading this thread, I'd echo the recommendation to work with professionals who understand both the tax and Social Security sides of these decisions. The complexity level definitely warrants expert guidance, especially when you're dealing with business ownership transitions. Thank you to everyone who shared their knowledge and experiences - this is exactly the kind of community support that makes complex financial decisions feel more manageable!