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Social Security Q&A:
Corporate officers must retire to get Social Security |
by Bill Hunot, Public Affairs
Specialist for the Social Security Administration
Q. I am the president of a small corporation. My
wife and I own all of the stock. I am approaching age 62 and
would like to start drawing Social Security benefits. I have
heard that I must sell my business if I want to collect Social
Security. However, I have also heard that if I just reduce my
salary to $10,080, I can get all of my benefits. Which is true?
A. You don't have to sell. But if you want to receive
Social Security benefits before full-retirement age, you must
retire.
Owners of successful small businesses who want to collect Social
Security before full-retirement age (currently 65), usually must
significantly reduce their participation in the business.
Otherwise, it is unlikely that Social Security will consider
them to be retired.
Some corporate presidents incorrectly believe that they can get
Social Security benefits without retiring. They continue to do
the same job. But they reduce their reported earnings-the wages
the corporation reports on form W-2-to an amount that allows
payment of Social Security benefits.
Instead of wages, they might take cash from the corporation in
other forms: payments to family members, increased dividends,
rental income, interest or loan repayments. Or they might allow
the corporation to temporarily retain the money. Either way,
it's wrong.
Corporate officers are required to report wages (on a W-2) that
reflect the true value of the services they perform for the
corporation. Any decline in wages must be the result of a
decrease in responsibilities, a decrease in work activity,
business reversals, or some other business-related factor. A
decline in reported wages cannot be a mere manipulation designed
to evade Social Security's earnings limit.
When a corporate officer applies for benefits, Social Security
must assure that the wages the corporation reports are
commensurate to the value of the services the officer performs.
If necessary, Social Security decides what the corporate
officer's work is worth. And that amount counts against the
$10,080 earnings limit-regardless of the amount the corporation
reports.
In addition to the standard application for benefits, corporate
officers usually complete a special questionnaire to provide the
additional information Social Security needs. They sometimes
must submit additional documentation such as copies of personal
and business tax returns, corporate minutes and resolutions,
stock transfer agreements and resignations. Social Security will
help gather the information needed to support the application,
but ultimately the burden of proof is on the applicant.
Here's an example of what Social Security calls a "questionable
retirement": Mary is president of her corporation and makes all
management decisions. She has been receiving a salary of
$75,000. Mary applies for Social Security just before her 62nd
birthday. She says that she plans to continue in the same
capacity with the corporation but her salary will drop to
$10,080-exactly the earnings limit for 2000. Her dividends will
coincidentally increase by $65,000.
Dividends don't count against Social Security's earnings limit.
However, in Mary's case, Social Security determines that the
decreased wages, increased dividends, and unchanged duties add
up to an effort to evade the Social Security earnings limit. And
that the additional dividends are actually wages in disguise.
The bottom line: Mary has not retired. She will earn $75,000.
She is not entitled to Social Security retirement benefits.
For more details, visit www.ssa.gov
.
Bill Hunot is a public affairs specialist for Social Security in
St. Louis. Send questions to
bill.hunot@ssa.gov or call 1-800-772-1213.
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