Self-Employment Tax and Social Security Benefit Rules for Retirees Who Start Pet-Sitting, Digi Mart USA News: Her first payment came through a pet-care app: a few hundred dollars for a week of feeding two cats and walking a beagle. That was when it made sense.
At 66, with $600,000 saved for retirement and Social Security checks already coming in, she is running a small business, and both the IRS and Social Security have rules for that.
Many new retirees end up in the same position. Pet-sitter forums are full of people comparing tax notes, and one tip comes up repeatedly: keep food expenses, vehicle expenses, business supplies and insurance costs tracked separately.
The advice is sound, because both the IRS and Social Security measure her net profit.
Start with her full retirement age. If she was born in 1960 or later, it is 67.
At 66, she is still a year short, which means Social Security’s earnings test applies to her.
In 2026, if she is under full retirement age for the whole year, Social Security withholds $1 from her benefits for each $2 she earns above $24,480. Because she is self-employed, only her net earnings from self-employment count, meaning what remains after expenses.
Her IRA withdrawals, interest and capital gains do not count toward the limit.
The tax rules apply much sooner. Once her net self-employment earnings reach $400 for the year, she owes self-employment tax and files Schedule C and Schedule SE with her return.
Self-employment tax is Social Security and Medicare tax for people who work for themselves: 12.4% for Social Security plus 2.9% for Medicare, or 15.3% in total. Employees pay 7.65%, and their employer covers the rest.
Because she is both the worker and the business owner, she pays the full amount.
She receives two adjustments. The tax is calculated on a slightly reduced version of her profit, and she can deduct one-half of the tax on her return.
Suppose she nets $30,000 in profit in 2026 after supplies and mileage. If she nets $12,000 instead, her self-employment tax falls to around $1,696, and none of her benefits are withheld.
The self-employment tax is money she will not recover. Withheld benefits, however, are not lost.
According to Social Security, once she reaches full retirement age, her monthly check increases to make up for amounts withheld. Her pet-sitting income could also permanently increase her benefit.
Social Security reviews earnings every year, and if a recent year ranks among her highest, it recalculates the benefit. That increase is retroactive to January of the year after the money was earned.
In 2027, she reaches full retirement age, and the limit rises to $67,920. Social Security considers only what she earns in the months before her birthday month.
Above that limit, it withholds $1 for every $3 earned.
She has two options. She can decline bookings to stay under $24,480, or she can accept the work, accept some temporary benefit withholding, and cover the gap from savings.
For most people with $600,000 saved, the second option is generally better. Turning down paying clients to protect money that is returned anyway leaves income unclaimed.
Capping earnings makes more sense only if every monthly check is already committed and there is no cash cushion.
She should keep a running total of her net earnings for the year and compare it to $24,480. If she is on track to exceed it, she should notify Social Security early so withholding can be handled in a lump sum rather than arriving as an unexpected bill later.
She should also avoid confusing gross bookings with net profit, since Social Security and the IRS both look at net profit, and every missed receipt makes her appear to have earned more than she did.
