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Does Deferred Compensation Affect the Social Security Earnings Test?

earnings test full retirement age (fra) hey marc! Oct 23, 2019

One of my FA’s has a client who started taking Social Security benefits at age 62. Her Full Retirement Age is 66 years and 8 months. She was born in 1958 and is currently age 65. She is receiving 1099 income that she is referring to as “deferred comp” from when she was working and being distributed this year. Does this 1099 income “deferred comp” factor into the earnings test?  She is retired.

For your client who started taking Social Security benefits at age 62 and is currently 65, the 1099 income she is receiving as “deferred comp” from when she was working does not count toward the Social Security earnings test, provided she is retired and the income is for services performed before retirement.

Here’s why:

  1. Earnings Test and Deferred Compensation:

    • Retirement Income: Since the income is classified as deferred compensation and is for services performed prior to her retirement, it does not count as "earned income" for the purposes of the Social Security earnings test. The earnings test primarily considers wages or net earnings from self-employment that are earned during the year while the person is working.

  2. Impact on Social Security Benefits:

    • No Impact on Benefits: Because this deferred compensation is tied to work performed before she retired, it will not be included in the earnings test that applies to individuals who claim Social Security benefits before their Full Retirement Age (FRA). Therefore, it should not cause any reduction in her current Social Security benefits.

In summary, as long as your client is retired and the deferred compensation is for work done prior to her retirement, this income will not affect her Social Security benefits under the earnings test. Let me know if you need further clarification or assistance!

The content on this blog is for informational purposes only and is not legal, financial, or professional advice. Social Security rules change periodically, so some information may become outdated. For the most accurate advice, consult a certified National Social Security Advisor (NSSA®). Social Security Professionals, LLC, and NSSA® are not responsible for any errors, omissions, or actions taken based on this blog's content. Use of this blog does not create a client relationship, and all information is provided "as is" without guarantees. By using this blog, you agree to hold Social Security Professionals, LLC, and NSSA® harmless from any claims or liabilities arising from its content. For personalized guidance, contact an NSSA® professional.

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