Are Gambling Winnings Considered Earned Income For Social Security

Posted on by admin
Are Gambling Winnings Considered Earned Income For Social Security Rating: 4,1/5 9295 reviews

$5000 or more from returns earned at poker tournaments. Returns that are subject of federal income tax withholding requirement. To do this, your Social Security Number and the Form W2-G reporting your returns to the IRS is needed. The rate of 25% is usually withheld from your returns as deductible tax. However, only “earned income” applies to SSDI income limits. Unearned income, which includes any income earned from investments, interests, spouse’s income or lottery winnings, do not have any limits. This means that no matter how much money you win playing the lottery, your SSDI payments will remain the same.

The following types of earnings income (or losses) do not countas earnings from employment or self-employment under the earningstest:

  1. Any income from employment or self-employment earnedin or after the month the individual turns FRA;

  2. Any income from self-employment received in a taxableyear after the year the individual becomes entitled to benefits.Such income must not be attributable to services performed afterthe first month of entitlement to benefits;

    Note: This income is excluded from grossincome only for purposes of the earnings test.

  3. Damages, attorneys' fees, interest, or penalties paid under court judgment or by compromise settlement with the employerbased on a wage claim;

    Note: Any back pay recovered in a wageclaim does count for the earnings test.

  4. Payments to secure release of an unexpired contractof employment;

  5. Certain payments made under a plan or system established for making payments because of the employee's sickness or accident disability, medical or hospitalization expenses, or death (see §1311);

  6. Payments from certain trust funds that are exemptfrom income tax (see §1314);

  7. Payments from certain annuity plans that are exemptfrom income tax (see §1316);

  8. Pensions and retirement pay;

  9. Sick pay if paid more than six months after the monththe employee last worked;

  10. Payments-in-kind for domestic service in the employer's private home for:

    1. Agricultural labor;

    2. Work not in the course of the employer's trade or business; or

    3. The value of meals and lodging furnished under certain conditions;

  11. Rentals from real estate that cannot be counted in earnings from self-employment. For instance, the beneficiary didnot materially participate in production work on the farm, the beneficiarywas not a real estate dealer, etc.;

  12. Interest and dividends from stocks and bonds (unlessthey are received by a dealer in securities in the course of business);

  13. Gain or loss from the sale of capital assets, or sale, exchange, or conversion of other property that is not stock in tradenor considered inventory;

  14. Net operating loss carry-over resulting from self-employmentactivities;

  15. Loans received by employees unless the employees repaythe loans by their work;

  16. Workers' compensation and unemployment compensation benefits and strike benefits;

  17. Veterans' training pay or allowance;

  18. Pay for jury duty;

  19. Payments for achievement awards, length of serviceawards, hobbies or prize winnings from contests, unless the personenters contests as a trade or business;

  20. Tips paid to an employee that are less than $20 amonth or are not paid in cash (see §1329);

  21. Payments by an employer that are reimbursement specificallyfor travel expenses of the employee and are so identified by theemployer at the time of payment;

  22. Payments to an employee as reimbursement or allowancefor moving expenses, if they are not counted as wages for SocialSecurity purposes (see §1333);

  23. Royalties received in or after the year a person turns FRA. The royalties must flow from property created by the person'sown personal efforts that he or she copyrighted or patented beforethe taxable year in which he or she turned FRA;

    Note: These royalties are excluded fromgross income from self-employment only for purposes of the earningstest.

  24. Retirement payments received by a retired partnerfrom a partnership provided certain conditions are met (see §1203);

  25. Certain payments or series of payments paid by anemployer to an employee or an employee's dependents on or after theemployment relationship has ended due to:

    1. Death;

    2. Retirement for disability; or

    3. Retirement for age.

    The payments are made under a plan established by the employer(see §1319); and

  26. Payments from Individual Retirement Accounts (IRA's)and Keogh Plans (see §1338).

Considered

Last Revised: Aug. 27, 2009

You may already knowthat if you’re under full retirement age and file for Social Security benefits,there’s a limit to the amount of income you can make before your benefit isreduced — or shut off completely.

But there’s one bigquestion that keeps coming up when I talk to people about this topic: Whatcounts as income?

Are gambling winnings considered earned income for social security recipients

Today, let’s find theanswer. I’ll cover what the Social Security Administration considers income aswell as what doesn’t count on yourearnings test.

Before we get there,let’s go over a quick overview of how the earnings test for determining whetheror not you’re hitting the earnings or income limit works.

What You Needto Know About the Social Security Earnings Test and Income Limit

The first thing toknow is that, right now, the earnings limit only applies before your full retirement age. Once you reach your fullretirement age, you can earn a bazillion dollars and continue to receive yourfull Social Security benefit.

Because fullretirement age differs based on your year of birth, we need to take a quicklook at the table so you’ll know exactly when your full retirement age is.

  • If you were born between 1943 and 1954,your full retirement age is 66.
  • For 1955, the age is 66 and 2 months.
  • For 1956, it’s 66 and 4 months.
  • For 1957 the age is 66 and 6 months.
  • For 1958, full retirement age is 66 and8 months.
  • For 1959, it’s 66 and 10 months.
  • For those born in 1960 or later, thefull retirement age is set at age 67.

Obviously, thecurrent full retirement age if you were born after 1960 is subject to changewith the proposals floating around to fix Social Security — but this is wherewe are right now.

How theEarnings or Income Limit Relates to Your Full Retirement Age

If you make more than $17,640, the Social Security Administration will withhold $1 in benefits for every $2 in income that exceeds that amount.

The one exception isduring the calendar year you attain full retirement age. During that period,the earnings limit nearly triples and the withholding amount is not as steep.

For every $3 you earnover the income limit, Social Security will withhold $1 in benefits. At yourfull retirement age, there is no income limit.

The $17,640 amount isthe number for 2019, but the dollar amount of on the income limit will increase on an annual basis goingforward. You need to keep up with the year-to-year changes to stay informed.

Are Gambling Winnings Considered Earned Income For Social Security Recipients

(Want to make thisvery easy to do? Just subscribe to myYouTube channel,because we do an update for these numbers as soon as we see them!)

What Counts AsIncome to the Social Security Administration

Now that you have abasic understanding of the income limit, we need to look at what actuallycounts as income toward that limit.

Thankfully, theSocial Security administration makes it easy to understand for most types of income that you mightnormally receive. First, let’s look at the income that does not count.

Earned

Income that does not count toward the earnings limit includes:

  • Pension payments
  • Most annuity payments
  • IRA and retirement accountdistributions
  • Dividends
  • Interest income
  • Capital gains

As the law iscurrently written, you can receive an unlimited amount of income from thesources above and receive your full Social Security benefit.

The income that does count in the earnings limit isemployment income. That means grossemployment wages if you’re an employee and/or your net earnings fromself-employment.

Some IncomeSources Are Harder to Classify Than Others

This nice, conciselist will take care of 95% of all the types of income that exists. But thereare numerous other types of income that can cause confusion.

You might have back pay, bonuses, vacation pay, deferred comp, fiduciary fees, renewal commissions — the list goes on. Unfortunately, we can’t go through each of these in detail here because even the Social security administration’s page lists 88 different types of income!

To confuse it evenfurther, there are some types of income that’s not counted for employees, butit is counted for those who are self-employed.

You can take a look at that pageto learn moreabout how these different types of income are treated. Some of this income iscounted, some of this income is not counted — but before you get too stressedabout this, remember that 95% of income sources are easily classified with oursimple list above.

Ifyou are under full retirement age and receive income from a source that is notone of the common ones we discussed above, you’ll likely receive a letter fromthe SSA alleging an overpayment.

Are gambling winnings considered earned income for social security taxable

Ifyou do, DON’T IMMEDIATELY ASSUME YOU HAVE TO PAY THE AMOUNT BACK.

Youdo need to communicate with theSocial Security Administration about this notice, or they’ll turn you benefitoff — but just because you receive a letter saying that the earnings testshould’ve applied doesn’t mean they are right.

I’veseen multiple cases in which all a client had to do was write a letter ofexplanation because the mistake was on the SSA’s end.

Justbe aware that when it comes to the earnings test, the Social SecurityAdministration seems to use the same playbook as the IRS does when they have aquestion. Instead of sending you a letter to get clarification, they simplyassume they are right and tell send you a letter saying how much you owe inadditional taxes.

Forexample, if a client sells a stock and doesn’t include the cost basis, the IRSjust assumes the entire amount of the proceeds should be a capital gain. Youhave to go back to them and tell them how much of the proceeds were the costbasis and how much represented an actual gain.

TheSocial Security Administration will often do something similar when it comes tothe earnings test and payments or income you received. They’ll send you anoverpayment letter that says something along the lines of,

“Becauseyou received this payment you should not have received your benefit. Startingon X date, we are going to stop paying your monthly benefit until theoverpayment is recovered.”

Are Gambling Winnings Considered Earned Income For Social Security Income

Thenthe burden is on you to explain why the payment doesn’t count as income for theearnings test.

(Asa side note to this…I recommend watching my video on How To Fix Social Security Overpayment Notices. I explain the process to file appealsand how to explain your position using their rules. If you get one of theseletters, do some research to protect yourself!)

It’s Not JustIncome That Matters – It’s Timing, Too

Additionally, theSocial Security Administration will often want clarification on the timing of yourearnings. In some cases, you may have earned money while you were stillworking, but didn’t receive it until after you stopped working and filed forSocial Security.

Does that income still count? The answer is,it depends. The rules are slightly different for employees and forself-employed workers.

Are Gambling Winnings Considered Earned Income For Social Security

For previousemployees, the Administration’s article, How Work Affects Your Benefits, says if you work for wages, income counts when its earned, not when its paid.

Then it goes on tosay if you’re self-employed, income counts when you receive it, not when you earn it. But there’s a time qualifier onthe end of that sentence; it goes on to say that this is true “unless [theearings are] paid in a year after you become entitled to Social Security andearned before you became entitled.”

Effectively, thismeans that if the payment occurs in the taxable year after you file forbenefits, it will not count against the earnings limit as long as the work wasperformed before you filed forbenefits.

But even within theserules there are some types of payments that fall in the cracks and don’t lineup perfectly with these rules. Again, I want to strongly emphasize that if youreceive a notice from the SSA alleging that you earned more than the allowableamount, dive into the rules to make sure they are right.

I promise you…they are not always right.

Questions?

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too.

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

If you’re wanting to get into the nitty-gritty of the research, here are a few resources that may help.

My video: How To FixSocial Security Overpayment Notices
https://www.youtube.com/watch?v=MkYXVwMmx0w

Social SecurityHandbook Chapter on Wages – https://www.ssa.gov/OP_Home/handbook/handbook.13/handbook-toc13.html

SSApublication “How Work Affects Your Benefits”

SSA POMS RS 02505.240 Summaryof How Major Types of Remuneration Are Treated
https://secure.ssa.gov/apps10/poms.nsf/lnx/0302505240

SSA POMS RS 02505.005 How to Count Wages Under the Earnings Test (ET)https://secure.ssa.gov/apps10/poms.nsf/lnx/0302505005

SSA POMS RS 01402.000Wage Exclusions
https://secure.ssa.gov/apps10/poms.nsf/lnx/0301402000

SSA Publication “Special Payments AfterRetirement”
https://www.ssa.gov/pubs/EN-05-10063.pdf

SSA POMS RS02510.016 Treatment of Special Payments (SP)
https://secure.ssa.gov/apps10/poms.nsf/lnx/0302510016

Are Gambling Winnings Considered Earned Income For Social Security Purposes

Article Rating