After burning out as an adjunct college professor some years ago, I took an unofficial early retirement and relocated to Costa Rica, where I reasoned (correctly) that I could live in modest comfort by drawing down my small retirement savings until I'm eligible for Social Security benefits at 62.
Well, 62 is around the corner (and my savings nearly depleted) so I have applied for Social Security, only to be shocked to be told by the clerk evaluating my claim that I risk having my benefits denied until I reach full retirement age.
The obstacle to my approval is that I am nominally self-employed as a writer, and admitted that when I applied. However, I assumed that my writing would be irrelevant for Social Security purposes, since I earn nearly no income from it. Some, actually most years I earn zero income, and frankly a big year for me is $300. The clerk however explained that it doesn't matter how little I earn from writing, it's the fact that I do it that disqualifies me. She also explained that it doesn't matter whether I write as a business or a hobby (to use the IRS distinction), since under either auspices writing disqualifies me from claiming Social Security benefits before full retirement age. The only issue, according to her, is how much time I devote to it. If I write more than 45 hours a month, my benefits are denied, if I write fewer than 45 hours a month, my benefits will be reduced.
Needless to say, I find this application of the rule against self-employed businesspeople receiving early retirement benefits to my case completely crazy. As I understand it, that rule is intended to prevent self-employed businesspeople from cooking their books in ways that disguise their incomes in order to receive Social Security benefits fraudulently, not to prevent a retired college professor from continuing to publish simply because he sometimes makes some incidental pocket money that way. Indeed, the supreme irony is that if my early Social Security benefits are denied on the grounds of self-employment, I won't have any self-employment income to fall back on. Instead, I'll either have to find a job fast or face the prospect of homelessness.
Various analogies come to mind. If I played golf over 45 hours a month and every once in awhile won a small golf tournament or otherwise made a little money, would my golfing count as self-employment and prevent me from receiving early Social Security retirement benefits? What if I spent over 45 hours growing orchids and occasionally sold one? Would I then be in the orchid business and ineligible for Social Security at 62? Is the rule here that early retirees are only allowed to engage in activities they're so bad at that they never earn a cent? Indeed, if an applicant liked to watercolor and spent 45 hours a month doing that, would they only qualify for benefits if they not only never sell a painting in a gallery but never even try?
But dropping the analogies, isn't a prohibition on sometime writers receiving early Social Security benefits tantamount to banning their free speech? Goodness, a main way ideas and opinions are expressed is by publishing them, and every once in awhile publishing an idea or an opinion earns a person a little money. To condition the receipt of early Social Security benefits on never so much as trying to publish in a way that might earn any money sounds a lot like denying the recipients their right to free speech.
There's also the professorial angle. Probably a lot of retired professors are happy to abandon their scholarly work upon early retirement, but a fair number take early retirement in part to continue their scholarly work without the distractions of teaching, committee work, and all the rest. Some of these retired professors publish books from which they earn some royalties as part of their continuing scholarship. Can these still active scholars be denied their early Social Security benefits on the grounds that they're self-employed over 45 hours a month, or in the alternative, must they promise to refrain from devoting any time to any scholarship that might conceivably one day make them a little money?
As said, the pickle I'm in strikes me as flat out crazy. Certainly the rule against the self-employed receiving Social Security at 62 wasn't intended to be applied to people like me.
In fairness, my benefits have not yet been denied, and while I'm worrying a lot about the prospect of denial, I truly don't expect to be denied. Denial just makes no sense to me. At the moment, I have just submitted my narrative explaining my situation (I believe SSA 795) together with another form and the requested copies of my previous tax returns. In my narrative, I just denied that I'm self-employed in the sense of being engaged in a "substantially gainful activity," which is true. I certainly don't write for financial gain--I give most of my stuff away for free--and definitely don't go about writing in a businesslike fashion. Instead, I played up the angle that I'm a retired professor continuing to contribute to scholarship, which is largely true (and fortunately my last book was published by a scholarly rather than a commercial press). Although I downplayed it, I also included the argument about civic engagement, and therefore free speech. Everything I publish (and most of it I publish for free) addresses one or another public issue. To my mind, this makes me an engaged citizen, not a person operating a business.
I did sneak in an indirect admission that I probably spend around 30 hours a month working on something that might conceivably generate a small financial gain for me. The Social Security clerk seemed keen on my telling her how many hours a month I work at my "self-employment," so I figured that I ought to throw in the 30 hour comment, just in case the ruling is against me. (I can probably live with reduced benefits, just can't live with a denial.) However, the 30 hour admission is completely silly, since I would have no way to count the hours. If I spend 45 hours a month just reading books that I may later draw from for my writing, is my reading self-employment or the leisure time activity that it would be for others who read the same books? What if I see something on TV or in a movie that I later use in my writing? What if I email a friend and we discuss some of the issues I'm thinking of writing about? It's just silly for me to try to count hours. However, I suppose if I count only the hours I spend actively writing something for which I might earn a little money, 30 hours a month is the truth. Alas, even that varies a lot. Some months it's nothing, other months it may be 100 or more hours. It depends upon whether I have an idea and where I am in the process of dogging it.
My ace in the hole, I think, is that I have only once in the last 7 years filed a Schedule C with my tax return, and I'm not sure that I should have filed it that year. What happened is that I had other income that my tax software listed on the line for "other income," and the software wouldn't allow me to add a small amount of book royalties I earned that year to the line. I therefore resorted to filing a Schedule C just to get those royalties reported to the IRS. However, for the most part my income from writing is so little (or non-existent) that I don't fool with filing a Schedule C. Years ago I often filed a Schedule C, and in some of those years even made a few thousand dollars in self-employment income from writing, but that was years ago. Since then I've pretty much resigned myself to not earning money from my writing and for the most part I don't even try to earn money. Instead, while I still write and publish, I do so when and because I have something to say, not with an eye to making a buck, and I think my tax returns substantiate this.
Anyway, while I hope to win my claim on the first round, and assume that I will, the prospect of denial is very frightening. My financial plan for years has been premised on the assumption that I'll receive my Social Security benefits at 62, and if I don't, I have no fallback. Indeed, crazy as it is, if I have to promise Social Security not to write again for the next four years in order to receive my benefits, I have no choice but to make that promise. Surely this isn't the intent of the rule against the genuinely self-employed starting their retirement benefits at 62, but I appear to be caught in a rule that was never intended to be applied to me, just is. If you have any thoughts, information, or advice, I'm therefore all ears.
Hi,
The fact that you are self-employed is not the issue. The Social Security annual earnings test is basically the same for a self-employed person as it is for a person working for wages. In both cases, if a person earns less than $16,920 this year, none of their Social Security benefits would be withheld. For self-employed individuals, the countable amount is their net-earnings for self-employment tax purposes. For employees, the countable amount is their gross wages.
In your case, the problem is the foreign work test (https://www.ssa.gov/OP_Home/handbook/handbook.18/handbook-1823.html), which applies since you are working outside the U.S. Under the foreign work test, the amount of your earnings is irrelevant. It is simply an either or test. You can receive a check for any month in which you work 45 hours or less, and you can't be paid for any month in which you work over 45 hours. Like the test for US work, this test only to benefits payable before full retirement age.
To solve your problem, you will need to keep your work hours outside the U.S. below 45 hours per month. Social Security isn't the thought police, so they generally will accept your allegation as to the number of hours worked as long as it is reasonable.
Best, Jerry
