Hiring retirees?

I guess it might be possible to hire someone who's already retired without them losing their Social Security checks. This guy just retired back in 2015 from a big company like Amazon, and now a different outfit, maybe something like Home Depot, wants to bring him on board. I think I read somewhere that you can only do this if they stay at the same company. If that's true, I suppose they wouldn't pay into Social Security, but I wonder what happens with the other payroll taxes?

He can be hired, but there’s a catch: he’d have to freeze his Social Security benefits.
All payroll taxes and contributions would apply just like any other employee.

I can frame it this way, quoting directly from the Social Security Administration website:

"Pensioners are permitted to engage in contract work while continuing to receive their full monthly benefits. (From an employer's standpoint, hiring retirees via independent contractor agreements is quite advantageous, as they are exempt from paying Social Security and Medicare taxes on top of standard income tax withholding.)"

I suspect the only way to pull off a part-time gig without being forced to freeze your Social Security benefits is if you've already hit full retirement age.

Nathan Morris3 said:I guess it might be possible to hire someone who's already retired without them losing their Social Security checks. This guy just retired back in 2015 from a big company like Amazon, and now a different outfit, maybe something like Home Depot, wants to bring him on board. I think I read somewhere that you can only do this if they stay at the same company. If that's true, I suppose they wouldn't pay into Social Security, but I wonder what happens with the other payroll taxes?

Section 99 of the Peace Act

You can hire them for up to half-time if they're already in full retirement status.

All the standard taxes still apply—you just won't be using the personal deduction since the tax info is already filed with NOAA.

Carol Price4 said:Section 99 of the Peace Act

You can hire them for up to half-time if they're already in full retirement status.

All the standard taxes still apply—you just won't be using the personal deduction since the tax info is already filed with NOAA.

From what I gather (at least since 2017), independent contractor agreements carry lower contributions, but only for the first tier. So, if I hire a retiree and say I'm paying everything normally, does that mean I'm covering the second tier too? Does that actually increase their pension even while they're already collecting one?
It seems like going with an independent contractor deal is way more cost-effective by all accounts, I just don't see any downsides. If a contractor agreement looks too much like a standard employment contract, could that cause issues? I guess I just don't see the catch.

Nathan Morris3 said:From what I gather (at least since 2017), independent contractor agreements carry lower contributions, but only for the first tier. So, if I hire a retiree and say I'm paying everything normally, does that mean I'm covering the second tier too? Does that actually increase their pension even while they're already collecting one?
It seems like going with an independent contractor deal is way more cost-effective by all accounts, I just don't see any downsides. If a contractor agreement looks too much like a standard employment contract, could that cause issues? I guess I just don't see the catch.

A guy at my old firm was on a 1099 contract. Even though he was doing a regular full-time job. It was the only thing that made sense given his retirement situation—he was a veteran, so freezing his benefits for some tiny extra cash wasn't worth it. The issue is the tax bite on those contracts is pretty heavy. Plus, he didn't get a paycheck every month... more like every two or three months when the work finally cleared. A 1099 is meant for occasional gigs, after all.

Nathan Morris3 said:From what I gather (at least since 2017), independent contractor agreements carry lower contributions, but only for the first tier. So, if I hire a retiree and say I'm paying everything normally, does that mean I'm covering the second tier too? Does that actually increase their pension even while they're already collecting one?
It seems like going with an independent contractor deal is way more cost-effective by all accounts, I just don't see any downsides. If a contractor agreement looks too much like a standard employment contract, could that cause issues? I guess I just don't see the catch.

For retirees, starting January 1st, the Social Security tax is just 10% for the first tier only—everyone else pays 7.5% for the first and 2.5% for the second—plus there's 7.5% for Medicare and a 24% federal tax plus local surcharges, assuming we're talking about an independent contractor agreement.

An independent contractor agreement is specifically for a defined project—you can't use it to cover a role that clearly functions as a regular employee under a standard employment contract.

Retirees also have that "side hustle" or hobbyist option—I was reading through the updated IRS guidelines late last night, and I think they kept all the old perks intact... but don't quote me on that!

Carol Price4 said:For retirees, starting January 1st, the Social Security tax is just 10% for the first tier only—everyone else pays 7.5% for the first and 2.5% for the second—plus there's 7.5% for Medicare and a 24% federal tax plus local surcharges, assuming we're talking about an independent contractor agreement.

An independent contractor agreement is specifically for a defined project—you can't use it to cover a role that clearly functions as a regular employee under a standard employment contract.

Retirees also have that "side hustle" or hobbyist option—I was reading through the updated IRS guidelines late last night, and I think they kept all the old perks intact... but don't quote me on that!

An independent contractor agreement seems like it would fit perfectly for what they're doing. You know, focusing on specific tasks and deliverables rather than set hours, plus being able to work from home... though I guess I wonder if there's a limit on how long you can keep someone on that kind of contract, like maybe for two or three years? It feels way more cost-effective than a standard W-2 position since the payroll taxes are lower and you aren't stuck dealing with part-time restrictions, plus the tax structure isn't progressive. I probably am missing something obvious, though. Maybe.

I guess I'm also a little confused about whether someone working on a freelance contract gets any pension benefits at all. If they don't, maybe they still pay that 10% for social security, but then 2.5% goes into a 401(k) plan where they get a small cut... though the cost seems exactly the same, and I suppose all the rights and obligations stay the same too.

http://www.irs.gov/employment-taxes/independent-contractor-vs-employee

Check out this breakdown on the differences between being an independent contractor versus a regular employee..

From an employer's perspective—regardless of whether you're already drawing Social Security—the cost ends up being the same.

Carol Price4 said:Section 99 of the Peace Act

You can hire them for up to half-time if they're already in full retirement status.

All the standard taxes still apply—you just won't be using the personal deduction since the tax info is already filed with NOAA.

devgirl, thanks for the help 😉.
I'm trying to compare a part-time retiree employment contract versus an independent contractor agreement. The deal for the retiree would be $4,000 for half-time.

For the contractor route, I'm using this calculator:
https://www.indeed.com/calculators...n=263&type=n2g
(since 2017 net = $4,002, total cost = $6,480)

For the employment contract:
https://www.indeed.com/calculators...eff=0&type=n2g
(since 2017 net = $4,000, gross 2 = $5,976)

Based on this, it actually looks like hiring them as a retiree might be cheaper than a contractor (if we want their net to stay at $1.25). But you mentioned the tax deduction shouldn't apply to an employment contract. Does that mean I need to remove the "Total Deduction = $3,800" line from this calculation, which would change the taxes? So my gross 2 would go up by ($3,800 * 24%) = $912, making the contractor option the winner after all: $6,480 < $6,888?

Since the employment contract contributes to a 401(k), does that mean their retirement savings grow more if we go that route? And if so, when would they actually see that benefit?

Nathan Morris3 said:devgirl, thanks for the help 😉.
I'm trying to compare a part-time retiree employment contract versus an independent contractor agreement. The deal for the retiree would be $4,000 for half-time.

For the contractor route, I'm using this calculator:
https://www.indeed.com/calculators...n=263&type=n2g
(since 2017 net = $4,002, total cost = $6,480)

For the employment contract:
https://www.indeed.com/calculators...eff=0&type=n2g
(since 2017 net = $4,000, gross 2 = $5,976)

Based on this, it actually looks like hiring them as a retiree might be cheaper than a contractor (if we want their net to stay at $1.25). But you mentioned the tax deduction shouldn't apply to an employment contract. Does that mean I need to remove the "Total Deduction = $3,800" line from this calculation, which would change the taxes? So my gross 2 would go up by ($3,800 * 24%) = $912, making the contractor option the winner after all: $6,480 < $6,888?

Since the employment contract contributes to a 401(k), does that mean their retirement savings grow more if we go that route? And if so, when would they actually see that benefit?

It’ll actually jump up by about $359, since you missed the local state tax.

He’s already retired, so he isn't contributing to a secondary pension fund—instead, through a standard contract, he'd just be paying into Social Security. I think there's some rule where they can request a benefit adjustment after hitting a certain income level or number of years... I read something about it recently, but honestly, don't kill me because I can't remember the exact source... maybe someone else here knows.

But hey, I just thought of something... if he has a pretty small pension...

The updated tax code says:

Section 24
(5) Income tax withholdings for non-self-employed work from items 2 and 3 shall be reduced by 50% for retirees based on their earned pension income.

So, if we could pull his tax withholding info from his Social Security statement (need to check, haven't dealt with this specific case!) so they calculate his tax on the full pension amount without the personal credit (while still using that 50% reduction!), and then you apply your full personal credit to his wages, the math might totally flip in your favor...

Well, one source says this:
http://www.ssa.gov/benefits/retirement/planner/index.html
Employment and Pension Payments
If someone receiving old-age or early retirement benefits takes a job—or starts any kind of business activity where they’re required to pay Social Security taxes—their pension payments get suspended.

THE EXCEPTION—For those collecting standard old-age retirement benefits (the traditional kind), if they continue working or take a job that is only half-time or less, their pension payments aren't suspended.


SO, ACCORDING TO THIS: THE ONLY PERSON WHO CAN WORK PART-TIME WITHOUT LOSING THEIR PENSION IS SOMEONE ALREADY ON FULL RETIREMENT (SPECIFICALLY A MAN AT AGE 65) WORKING FOUR HOURS A DAY!!

But then, another source claims something completely different: http://www.irs.gov/retirement-plans
Working while collecting a pension
QUESTION:
I am currently receiving an old-age pension, but it just isn't enough to cover my household expenses. I've been offered an opportunity for some extra income, so I want to know if I can work without losing my right to my pension?
ANSWER:
As a recipient of old-age retirement benefits, you are permitted to perform occasional freelance or contract work, and doing so will not result in the loss of your eligibility for benefits nor will it stop your payments during that period of work. In short, you can receive your pension and work on a contract basis simultaneously.

So, which one is actually the truth? Honestly, it's maddening.

Here is yet another similar take: http://www.forbes.com/retirement

Working while retired – retiree employment – working during retirement
After fielding numerous inquiries regarding the legality of retirees working—that is, working alongside a pension—we are providing some brief information concerning employment and activities performed by retirees.
Retirees may work under either a standard employment contract or a freelance/independent contractor agreement.
For retirees (those receiving standard or early retirement benefits) who take on full-time employment where social security contributions are mandatory, pension payments are suspended for the duration of that employment and resume once the job ends.
The exception applies to retirees who have reached "full" retirement age (this doesn't apply to early retirement); for them, if they work up to half of a regular full-time schedule, the pension payments are not stopped.

If I'm reading this correctly—and I try to be, despite the headache—it means retirees of any kind can do freelance contract work. However, they can't hold down a "regular" job unless they are already at full retirement age, and even then, they are limited to part-time!