If you are on social security or disability, then you may question whether or not making money is considered a hobby versus a business.
Today we will run through a couple of scenarios.
Let’s Talk Social Security
Let’s talk about social security first since it’s the easiest. Absolutely, you can start a business if you are receiving social security benefits and that business income won’t affect your benefits. It’s important to keep in mind that you can earn up to $17,000 per year before you start having an issue. So what happens if you earn more? For every dollar that you earn over that $17,000 mark, then $2 becomes taxable income.
Let’s Talk Disability Income
Now let’s move onto disability income, which can be much more complicated. The first thing to remember is you need to keep your earnings under $1,000 per month. Then there are some other tests that the disability administration will look at that could potentially reduce your benefits. Those are the Significant Services and Substantial Income test, the Comparability test, and the Worth of Work test. Let’s run through these really quick.
Significant Services and Substantial Income Test
If you are making more than $1,000 per month and you are providing some kind of service for that money, that fails the test and your benefits will probably be reduced or taken away.
Is your business something comparable to what you were doing before you went on disability?
Worth of Work Test
Are you spending a significant amount of time doing these activities? Is anyone helping you? Then that means you may have replaced your old job with a new one.
What is Your WHY???
If you are just trying to make a little extra money selling a few things, it’s unlikely you will have a problem.
The key is to look at your WHY? Do you want to get off of your disability? Then by all means, work harder to make more money. Disability benefits are a small amount of money per month, and there might be a circumstance where you have to be on disability and you just need a little extra money and want to stay active.
Getting a Tax ID Number does not mean you are going to automatically lose benefits. You can start slow and see where this job takes you.
So what exactly justifies a hobby and what justifies a business? If you have made more than $600 for any type of craft or service, it’s no longer a hobby and is now a business. And this will need to be reported as income to the IRS for your tax year.
If you are on social security or disability benefits but want to start a business and maybe just need some direction, I do have a go-to group that will help you start your business legally.
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Thanks for reading today! Hope this post helps you make a more informed decision. You can find more free business tips on my YouTube channel @hardworkingmom.
Until next time,