Individuals filing for Social Security monthly benefits between the age of 62 and their full retirement age AND who are self-employed or a corporate officer will find they have to provide the Social Security Administration with proof that their work and earnings have been reduced before benefits will be paid. The Social Security Administration refers to this as “Questionable Retirement”.
In the recent past, the SSA actively sought and questioned individuals who they believed were still working more than 45 hours a month as self-employed. But effective December 2011, the Social Security Administration accepts and posts the earnings allegations of corporate officers and self-employed individuals without questioning or developing the allegations.
Previously, they had a long-standing policy to develop questionable allegations of retirement made by corporate officers and self-employed individuals. The rationale for creating the questionable retirement policy was that corporate officers and self-employed individuals could control the amount of their earnings, by reporting lower than actual earnings, thereby avoiding deductions under the annual earnings test. The Social Security Administration believed that the application of this policy to those individuals would provide long-term program dollar savings to the trust fund.
Over time Social Security found that the time spent questioning corporate officers and self-employed individuals, and the processing associated with this policy did not always result in consistent payment decisions. In addition, while the QR determinations provided immediate program savings to the Social Security Trust Fund, there were no long-range savings.
Once the individual reached their full retirement age and Social Security applied the adjusted reduction factor, the individual ended up with a higher ongoing monthly benefit amount. Since individuals are living longer, this higher ongoing monthly benefit eventually eliminates any short-term program dollar savings. If Social Security initially accepts the lower earnings allegations, they permanently reduce the benefit amount. This lower benefit amount results in benefit outlays over a lifetime of about the same or less as if Social Security had imposed questionable retirement and then adjusted for the adjusted reduction factor.
The elimination of the questionable retirement policy does not affect the substantial services in self-employment policy. The Social Security Administration will continue to develop for substantial services in the grace year for self-employed individuals.
In your initial year of retirement (grace year) Social Security holds that if a taxpayer spends more than 45 hours a month in self-employment he/she is not retired. Less than 15 hours a month is retired. Work between 15 and 45 hours a month may be considered as retired.
A simple way to avoid any questionable retirement claims is to simply wait until full retirement age before beginning to collect Social Security retirement benefits. Once an individual has reached full retirement age, Social Security no longer tracks how much an individual earns as full benefits have already matured.