social security benefits for the self-employed

[cspyon]

So, the earnings limit for 2024 is $22,320/year ($1,860/month). This means that I can earn up to $22,320 and continue to receive my Social Security retirement benefit.  According to the SSA website, it says, "we count only the wages you make from your job or your net earnings if you're self-employed." I'm 62 years old and self-employed. 

So, this is my question. Even if I make around $40,000 gross this year, my net earnings as a self-employed man could be reduced to below $20,000 (well below the earning limit of $22,320) if I include the standard deductions and other legitimate deductions like traditional IRA contributions when I file the tax returns next year, right? 

[VolvoGirl]

No.  It's on the total earnings before the standard deduction and IRA.  It will be the Net Profit on Schedule C for self employment.

[NCperson]

the $22k limit is based on the earnings that are subject to SS.   So, in your case, it is effectively the Schedule C income.  The standard deduction and trad IRA deductions wouldn't impact Sch. C. 

[VolvoGirl]

Oh and even though your SS checks will be reduced or not,  your SS can be taxable on your tax return.

Up to 85% of Social Security becomes taxable when all your other income plus 1/2 your social security, reaches:

Married Filing Jointly: $32,000

Single or head of household: $25,000

Married Filing Separately: 0

[cspyon]

Oh I see.

What about the 401k withdrawals?  Don't they count as Schedule C income? If not, where do they belong to in the income category?

[VolvoGirl]

No.  Schedule C is just one kind of income on your 1040 tax return.  Schedule C Net Profit or Loss ends up on 1040 line 8.  401K withdrawals are on 1040 line 5.  

Here is a 1040 to look at

https://www.irs.gov/pub/irs-pdf/f1040.pdf 

And for 401k and IRA withdrawals..........

You don't actually pay the tax or the 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You have taxes withheld like from your paycheck. You still have to enter the whole gross amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b. The withholding will show up on 1040 line 25b.

[cspyon]

Hi 

I'm a bit confused here.

I'm a self-employed contractor, so I receive 1099-NEC form from the contractor company.

If I receive the social security benefits, this income will be included as my social security earnings, right? Is it what they call the Schedule C income? 

Now, this is my second question. If I start withdrawing some money from my 401k account regularly, it does add up to my gross income, but it's not part of my social security earnings, isn't it? 

[VolvoGirl]

Yes you have to fill out schedule C to report your self employment and  1099NEC income.  Even if you don't get a 1099NEC you have to report all your self employment income.  Then you enter all your expenses.  You will pay Self Employment tax on a Net Profit of $400 or more.  That doesn't have anything to do with the SS benefit checks you are getting now.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment. You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire.  The SE tax is in addition to your regular income tax on the net profit.

Turbo Tax Beginners Tax Guide for the Self Employed
https://turbotax.intuit.com/tax-tips/self-employment-taxes/beginners-tax-guide-for-the-self-employed...

Here is some IRS reading material……
IRS information on Self Employment
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

Publication 535 Business Expenses
https://www.irs.gov/pub/irs-pdf/p535.pdf

Publication 334, Tax Guide for Small Business
https://www.irs.gov/pub/irs-pdf/p334.pdf

1040 Schedule C
https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

1040 Schedule C Instructions
https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

[NCperson · Accepted solution]

you are liable for INCOME tax on ALL your INCOME- whether that is earned by working (schedule C / form 1099-NEC) or by not-working (IRA distributions, taxable portion of social security income, interest, dividends, etc.) 

only the income that is earned by working is used to determine the $22k threshold.  if that threshold is pierced, some of the social security payments will be returned to Social Security.  

[cspyon]

Okay, I now clearly understand it! Thanks a lot.