I'd never have to pay Social Security or Medicare tax if I made my living off investments and capital gains?

Question

Would that annual income (from non-earned income) nonetheless be used in figuring the amount of Social Security and Medicare I'd get after I retire?

I'm in my early 50's. I have been paying Social Security and Medicare.
I'm asking if I "retired" now and just sold off my properties for capital gains, if I'd not have to pay on those gains, if those gains were my entire income each year.

I'm talking about real estate, not selling off my IRA early. I have paid soc. sec. for over like a thirty-plus year period.
To complicate matters, I paid exclusively into teacher retirement for several years also.

Answer 1

Nope! If that was your entire income for your lifetime, you'd get exactly $0 from Social Security. You would be completely ineligible for ANY Social Security benefits whatsoever.

And ignore the "engineer". He knows nothing about tax or SS rules. Investment income is NOT earned income and is NOT subject to Self-Employment tax.

Addendum: If you have paid into the SS system enough to be considered fully eligible (basically 10 years of full employment) you'll get something when you retire. However, unearned income such as dividends, interest, capital gains, rents and royalties, etc. are not subject to SS taxes and are NOT used in calculating your SS benefits, either for retirement OR for disability. It doesn't matter when you received the unearned income, it won't be used to deternime your benefits.

More info: What you MIGHT be able to do is to form a corporation that acts as a holding company for your investments. Pay yourself a salary out of the investment income. That salary will be subject to Social Security and Medicare taxes as well as income tax withholdings. You'll also have to pay some in federal and state unemployment taxes but it will allow you to continue to pay into the SS system and that way the income you earn will be considered in calculating your SS benefits. Consult with a qualified tax advisor on this aspect. I don't do much with corporate returns and it wouldn't surprise me if there are some rules that would limit this angle but it would be worth considering, especially if you're looking at a lot of income that would otherwise not be used in the calculation of your benefits. Just a thought.

Answer 2

That's where I'm at at the moment. I have no earned income and only unearned income from investments through capital gains and dividends. I also draw a small pension to add to that.

I have worked for many years paying into the SSA system and will be eligible to draw against that when I reach 62 or later.

I believe that now your SS is determined by the average wages earned over the last 30 years.

However, I do not pay any medicare or SS taxes.

good luck

Answer 3

You are correct, you don't pay social security and medicare taxes on investment income and capital gains. But NO those amounts are not included when calculating social security benefits.

Medicare benefits are the same for everyone who is covered under medicare, and don't depend on how much you paid in over the years.

Answer 4

If you have more than 10 years of credit you will get social security based on your averaged indexed monthly earnings over 35 years. If you do not have 20 years worth of "substantial earnings" (that's roughly like working full time for minimum wage) the portion of your benefit figured at 90% of your average earnings is reduced to 40%. If your primary occupation was public school teacher and you worked part time under social security, this means you. With over 10 years coverage, you will be entitled to full medicare coverage when you reach 65.

Answer 5

First of all you do pay tax on Capitol gains. Been there, done that, Secondly you don't get SS unless you work a certain amount of time in your lifetime. Any income you got from Savings accounts stock dividends, etc is reported to the IRS. Theres noway you can get by with it. Sorry

Answer 6

If your talking about retirement accounts, and you start withdrawals, they will hold, by law, 20% Federal. Your still responsible for State tax. Its taxed at the ordinary income level, just as if you where working.

Answer 7

I think you'd be considered "self-employed" and have to pay the associated taxes for that in lieu of standard payroll taxes.