What small businesses must prove to collect Social Security

According to the U.S. Small Business Administration, nearly 9.9 million workers in the United States were self-employed in the second quarter of 2012, and that figure does not include those whose businesses are incorporated. If you are either self-employed or an officer of a corporation, even if it is only a small family business, you may be taken aback by the amount of questioning you will receive from Social Security when you apply for retirement or other benefits. The purpose of this article is to explain what you must prove in order to receive payment from Social Security.

Unlike most other employees, the self-employed and officers of corporations are in a position to control the reporting of their earnings, both for taxes and Social Security purposes. For this reason, Social Security cannot automatically accept your statement that you are reducing your earnings by working less or that you are stopping work altogether; they need to be able to verify the change in your earnings, otherwise they are required to presume that your earnings have not declined, and 
that might limit or prevent you from receiving Social Security benefits if you have not yet reached your full retirement age. The easier it is for them to verify the change in your earnings, the sooner you are likely to begin receiving benefits, assuming that meet all the other requirements and that your reduced earnings are low enough to permit payment.

The following are suggestions based upon my twenty-five years of experience as a Social Security claims representative.

First, it is easier to prove that you have stopped working than to prove you are reducing your earnings. You can show Social Security a bill of sale if you have sold a store that you used in the operation of your business, or verification from your commercial landlord that you are no longer operating a business at your former location. If your business is incorporated, you can submit proof of the dissolution of the corporation.

If you are still working but reducing your earnings, you should be ready to provide a description of the changes in the operation of your business  that resulted in lower earnings for yourself; such changes may include reduced hours, reduced duties, or a change in the amount of business you are handling.  Based on that description and any additional proof they request from you, Social Security will determine whether they can accept your estimate of earnings.

It is a good idea to bring your complete Federal tax returns for the past two or three years when you first come in to apply for Social Security benefits, so that the interviewer can understand your own particular business situation better when they compare your current work to your past work.

Depending on the nature of your particular business, it may be difficult to verify a reduction in your earnings. Seasonal businesses, those that operate without a store or office outside the home and businesses that do not have steady suppliers or major customers who give them repeat business are notoriously difficult to verify, as are those whose days and hours of operation vary frequently. Since the burden of proof is on you as the applicant, Social Security may not be able to accept your lower earnings estimate if it cannot be verified. 

If your estimate is not accepted, you might have to wait until after your next tax return has been filed for the current year, and then bring that complete Federal return to your local Social Security office. You will probably be asked to see an interviewer, so you will save waiting time in the office reception area by making an appointment in advance; call 1-800-772-1213.

Finally, remember that the Social Security interviewers are only doing their job. Take it from me, they usually do not look forward to lengthy interviews with self-employed people or officers of family corporations because they know such interviews can become unpleasant if the client becomes impatient or annoyed at the line of questioning, or if the person seems to be giving evasive or dishonest answers. Just try your best to answer the interviewer’s questions briefly and accurately, and that will go a long way toward helping both of you get through the process as quickly and efficiently as possible.