Social Security Earnings Test: Do Rental and K-1 Income Count?

The 2027 numbers

The limits come from the Social Security Act’s formula and rise with the national average wage index. SSA’s table lists them year by year, and the 2027 row is in it (the rest of SSA’s 2027 announcement, including the cost-of-living adjustment and the taxable maximum, is covered in our 2027 Social Security guide).

Source: SSA, “Exempt Amounts Under the Earnings Test”, which lists $25,560 for people attaining full retirement age (“NRA”) after 2027 and $67,920 for people attaining it in 2027; SSA, 2027 COLA Fact Sheet (monthly amounts); SSA, “How Work Affects Your Benefits” (2026 edition) for the one-for-two and one-for-three examples and the 2026 row.

Full retirement age is 67 for people born January 2, 1960 or later (SSA, How Work Affects Your Benefits). Our reading is that in 2027 the $67,920 tier therefore applies to people born in 1960, who reach 67 during 2027, and the $25,560 tier to people born in 1961 or later who claim early. Anyone born earlier has already passed full retirement age by 2027 and has no limit.

The lower amount has risen from $15,720 in 2015 to $25,560 in 2027, an increase of 62.6% (our arithmetic):

Source: SSA, “Exempt Amounts Under the Earnings Test”, table “Annual Retirement Earnings Test Exempt Amounts”. The full series for 2015 to 2027 is in the CSV.

The sorting table: what counts and what does not

The test reads income by its legal character, not by how much effort it took or how it is taxed. A rental can be hard work and still not count; a W-2 can be a few hours a week and still count. The table sorts 34 kinds of income an investor with $250,000 or more is likely to have, with the SSA policy item or regulation that decides each.

Source: 42 U.S.C. 411(a); 20 CFR 404.429, 404.1080, 404.1081, 404.1082, 404.1083, 404.1084; SSA POMS RS 01802.015, RS 01802.100, RS 01803.310, RS 01803.400 to RS 01803.624, RS 02505.005, RS 02505.060, RS 02505.240; Instructions for Schedule SE (2025); Partner’s Instructions for Schedule K-1 (Form 1065) (2025). POMS RS 02505.240 says its list is “a guide only” and “not all-inclusive”. The last row is our reading.

The pattern is a short rule with three levers. A payment counts if you were paid for work (a W-2, a fee, a share of a business you run) or if you carry on a trade or business, and it does not count if you are simply an owner or lender (rent from an investment property, dividends, interest, gains). That is the same line the self-employment tax draws, which is why SSA’s manual tells staff that net earnings from self-employment “generally have the same definition for ET purposes as for coverage purposes” (POMS RS 02505.050).

Rent: why a landlord who does the work still does not count

The statute excludes “rentals from real estate and from personal property leased with the real estate … together with the deductions attributable thereto” unless they are “received in the course of a trade or business as a real estate dealer” (42 U.S.C. 411(a)(1)). SSA’s regulation then states that renting living quarters in “a private residence, duplex, or multiple-housing unit” is generally rental income from real estate that is excluded (20 CFR 404.1082(d)(1)). The test is the kind of arrangement, not the number of hours you spend: a landlord who paints, collects rent and repairs the roof of an ordinary rental does not turn the rent into earnings.

Two lines in the regulation decide most cases for investors.

• Investor versus dealer. “If you merely hold real estate for investment or speculation and receive rental income from it, you are not considered a real estate dealer.” A dealer is someone “engaged in the business of selling real estate to customers for profit” (20 CFR 404.1082(b)). A dealer who also holds investment property counts only the rent from the property held for sale, not the rent from investment property (20 CFR 404.1082(b)(3)).
• Services for the occupant. Payments for living quarters “where services are also provided to the occupant, as in hotels, boarding houses, or apartment houses furnishing hotel services” are included, as are payments for parking lots, warehouses and storage garages (20 CFR 404.1082(d)(2)(i)). The manual’s lists are concrete: making beds, furnishing linens and towels, dusting and cleaning the space, and providing swimming pools or tennis courts are services for the occupant; furnishing heat, light and water, painting, collecting trash and cleaning common areas are for the protection or maintenance of the property (POMS RS 01803.624 C and D).

The regulation’s own example mixes the two. A owns a building with four apartments: $1,400 comes from two apartments rented without services, $3,600 from two rented with services, and the fixed expenses are $1,200. A counts the $3,600 less $1,100 of expenses attributable to those two apartments, which is $2,500, and excludes the rest (20 CFR 404.1082(d)). The IRS draws a similar line for income tax: rent goes on Schedule E, but “if you provide substantial services that are primarily for your tenant’s convenience, such as regular cleaning, changing linen, or maid service,” it goes on Schedule C (IRS Publication 527 (2025)). For the borderline case of a short-term rental, see our short-term rental tax guide; our reading is that if your rental is reported on Schedule C because of services to guests, SSA treats the profit as net earnings from self-employment, and if it is on Schedule E it is excluded.

Being a real estate professional for tax purposes does not change this. The test of real estate professional status decides whether rental losses are passive for income tax; the Social Security exclusion in 42 U.S.C. 411(a)(1) turns on whether rent is received in the course of a business as a dealer or with services, not on how many hours you work (our reading of the two provisions).

K-1 income: it depends on what the entity does and what you are

A Schedule K-1 reports tax character, not Social Security character. The three common structures behave differently.

• Limited partner in a fund or syndication. The Code excludes “the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments” for services actually rendered (42 U.S.C. 411(a)(12)). SSA’s regulation adds that a limited partner’s share counts only if it is payable for services you render and is a guaranteed payment under section 707(c) (20 CFR 404.1080(b)(2)). In practice the K-1 for most crowdfunding and real-estate fund investors reports $0 in box 14 for a limited partner; a nonzero amount is a flag to check.
• General partner or member who runs the business. Your “distributive share (whether or not actually distributed) of the income or loss from any trade or business carried on by a partnership” counts, unless an exclusion such as rent or capital gain applies inside the partnership (20 CFR 404.1080(b)(1), 404.1081(d)). The partnership’s K-1 reports this in box 14 code A. Rent and dividends earned inside the partnership are excluded at that level too, so only business income should reach box 14 (our reading of 20 CFR 404.1082(e) and 404.1083). Whether a member of an LLC is treated as a limited partner for self-employment tax depends on section 1402(a)(13) (Instructions for Schedule SE (2025)); our reading is that SSA follows the same classification.
• S corporation shareholder. The corporation is “separate and distinct from its shareholders” and the income may take three forms: wages you receive as an employee, fees paid to you as a director (which are self-employment income), and dividends (POMS RS 01802.015). Only the wages and the director fees count. The profit that passes through on the K-1 does not. SSA tells staff not to question the classification “unless improper reporting is apparent; e.g., all income is reported as SEI one year and dividends the next.”
• Beneficiary of an estate or trust. A trust or estate that operates a business is the one carrying it on; the beneficiary’s share is not net earnings from self-employment until the business is partially distributed to them, or there is no administration (POMS RS 01802.100 C and D).

For REIT and BDC shares there is no pass-through of business income at all. The distribution arrives on Form 1099-DIV, with ordinary dividends and capital gain distributions that are both outside the test, and any return of capital in box 3 is neither wages nor self-employment income (our reading). For the tax side of the same forms, see how to read a K-1 and K-1 versus 1099-DIV.

How self-employment income is measured

Once something counts, the arithmetic follows rules that surprise people.

• 92.35% of net profit. For tax years after 1989, SSA multiplies net profit by 0.9235 to get net earnings from self-employment, the same multiplier used for self-employment tax. The multiplier is not applied to a net loss, and it is not applied when the result would be under $400 (POMS RS 02505.055).
• All of it counts, even above the Social Security tax cap. SSA counts “all NESE, including amounts above the maximum limitation for SE Tax and amounts under $400” (POMS RS 02505.055; 20 CFR 404.429(b)(4)).
• Losses offset. “Use the loss to reduce gross wages and other NESE for the same TY”, and net earnings from all your businesses are combined (POMS RS 02505.055; 20 CFR 404.1081(c)).
• Year received. SSA counts self-employment income in the taxable year it is received, actually or constructively for a cash-basis taxpayer, or when it accrues for an accrual-basis one (POMS RS 02505.050 C). Wages instead count when earned, not when paid (SSA, How Work Affects Your Benefits).
• Income earned before you claimed. After the first year you are entitled to benefits, self-employment income that is “not attributable to services you performed after the first month you became entitled to benefits” is excluded (20 CFR 404.429(b)(2)(ii); POMS RS 02505.125). The regulation lists what does not count as services: “Hiring an agent, manager, or other employee to operate the business,” signing contracts when others negotiated them, and reviewing financial records are not significant services (20 CFR 404.429(b)(3)). Royalties cannot use this exclusion; a separate rule excludes royalties from a copyright or patent obtained before the year of full retirement age once you reach it (POMS RS 02505.125, RS 02505.060). For someone who sells a business and is paid over several years, our reading is that this is the provision that can keep later payments out of the test.
• Self-reporting. SSA says that, since December 23, 2011, it accepts and posts earnings allegations of corporate officers and the self-employed “without questioning or developing” them, and refers misreporting to the IRS, which “independently handles these earnings-taxation issues” (POMS RS 02505.196). The tax return is the record.

The first retirement year and the “45 and 15 hours” guide

In the first year you have a month in which you are retired, SSA applies a monthly test: you get a full benefit for any month in which wages are at or under the monthly amount and, if self-employed, you did not perform “substantial services” in the business, even when your annual earnings are over the limit (20 CFR 404.435; SSA, How Work Affects Your Benefits). For 2027 the monthly amounts are $2,130 and $5,660 (SSA, 2027 COLA Fact Sheet).

For a self-employed person the question is hours and skill. SSA’s booklet says: “In general, if you work more than 45 hours a month in self-employment, you’re not retired. If you work less than 15 hours a month, you’re retired.” Between 15 and 45 hours, you are not retired if the job requires a lot of skill or you manage a sizable business. The regulation lists the factors, including whether an adequately qualified paid manager, partner or family member manages the business and how much capital is invested (20 CFR 404.446(a)). This test does not apply to passive rentals, because they are not in the test at all; it matters to a flipper or a developer who has stopped working but still owns the company.

Nine cases with the arithmetic

Every case is a 62-year-old claimant under full retirement age all of 2027 with $2,000 a month ($24,000 a year) in benefits and the $25,560 limit, unless stated. The arithmetic follows the rules above; the 0.9235 multiplier applies to net profit (our arithmetic).

Source: our arithmetic. Limits from SSA, “Exempt Amounts Under the Earnings Test”; the withholding fractions from the same page; the 0.9235 multiplier and the loss rule from POMS RS 02505.055. SSA withholds in whole monthly benefits, so the amounts are shown before rounding to months. Case 9 uses the one-for-three rule and does not count earnings from the birthday month on.

Cases 3 and 4 are the same dollars with a different legal character, and one costs $14,925 while the other costs nothing. Whether a house sale is dealer income or a capital gain on investment property is a tax classification SSA takes from the return, and the IRS looks at the facts: how many sales, how long held, the purpose. The dealer-versus-investor question is the one covered in our house flipping guide. Case 5 shows why Schedule C versus Schedule E matters beyond the income tax. Case 8 shows that a loss is not wasted: it reduces the wages that would otherwise be counted.

The same income, two different tests

The earnings test is not the tax on benefits, and a reader who has seen one often assumes the other. The same $18,000 of net rent can be invisible to one and the main driver of the other.

Source: SSA POMS RS 02505.240 and 20 CFR 404.429 for the earnings test; our guide to taxable Social Security for the section 86 column, which reads IRC section 86 and IRS Publication 915.

For the tax side, including how much of your benefits $18,000 of rent can make taxable, see how much of Social Security is taxable with rental and K-1 income.

What a reader can do with this

• Sort your income into counts and does not count before you claim. Use the table above on last year’s return: wages and W-2 salary from your own company, Schedule C profit and box 14 code A on a K-1 count; Schedule E rent, 1099-DIV dividends, 1099-INT interest, Schedule D gains and distributions from retirement accounts do not.
• Know what you would tell SSA. When you claim before full retirement age, SSA adjusts your benefits using your estimate of the year’s earnings and asks you to report changes right away (SSA, How Work Affects Your Benefits). The estimate is wages plus net earnings from self-employment, not your adjusted gross income.
• Look at the Schedule C line, not the activity. If a rental reports on Schedule C because you provide substantial services, or if you hold properties for sale, the profit is probably within the test. A CPA can confirm how your return characterizes it.
• Compare the cost of withholding with the later increase. Withheld benefits come back as a higher monthly benefit from full retirement age (SSA’s example: $910 becomes $975). Our reading is that this is not a loss to the person who lives long enough; it is a trade between now and later, and a planner can price it for your age.
• Mind the calendar. The 2027 amounts apply from January 1, 2027; SSA announces the next year’s amounts each October.

This is analysis of public documents, not investment, legal or tax advice.

FAQ

Sources, read and saved on October 22, 2026: Social Security Administration, “Exempt Amounts Under the Earnings Test” (oact/cola/rtea) and the 2027 COLA Fact Sheet; SSA publication “How Work Affects Your Benefits” (2026 edition); SSA Program Operations Manual System RS 01802.015, RS 01802.100, RS 01803.310, RS 01803.400, RS 01803.500, RS 01803.600, RS 01803.610, RS 01803.624, RS 02505.001, RS 02505.050, RS 02505.055, RS 02505.060, RS 02505.125, RS 02505.196 and RS 02505.240; 20 CFR 404.428, 404.429, 404.430, 404.435, 404.446, 404.1080 to 404.1084 (eCFR); 42 U.S.C. 411 and 26 U.S.C. 1402 (law.cornell.edu); Instructions for Schedule SE (Form 1040) (2025), Partner’s Instructions for Schedule K-1 (Form 1065) (2025) and Publication 527 (2025). The ssa.gov pages for the earnings test table and the booklet were read from copies held by the Internet Archive because ssa.gov blocks automated requests. The case arithmetic is ours.