Social Security Earnings Definition

For Social Security purposes, your earnings are the sum of gross wages plus net earnings from self-employment, minus any net loss from self-employment. Examples of what are counted are outlined below.

• All wages are counted even if they are not covered by Social Security tax (FICA).
• Bonuses and awards are counted if they were earned during the year.  
• Advances against future commissions are also counted for employees.
• Dividends and interest received by a dealer in stocks and securities are counted if produced by his inventory for resale.
• Profit sharing payments from a plan which is not tax exempt are included.
• Real estate dealers who hold property for resale must include rental income from the property.
• Royalties received from a copyright or patent obtained in or after the year you turn 65 are counted for deduction purposes. Royalties received from properties obtained before the year you turn 65 are not counted.
• Sick pay received during the first 6 months after stopping work is included.
• Temporary disability insurance is included unless you paid the premiums for it.
• Travel and business expenses paid to an employee are counted.
• Vacation pay is counted.

Income that are excluded for Social Security purposes

Any payments which are not wages or self employment income are not included in earnings for the purpose of Social Security. Examples are outlined below:

• interest received
• dividend received
• capital gains
• legal damages (unless they result from a legal action for wages)
• wages which are used to hire a substitute employee
• rental income
• income from hobby
• prizes and awards
• royalties from a work personally created on which a patent or copyright was obtained before the year you become 65 (if the royalties are received in or after the year you turn 65)
• sick pay received more than 6 months from the last month you worked
• unemployment benefits
• worker's compensation benefits