How do Oil & Gas Royalties effect my Benefits?

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Receiving natural gas royalties can lower your Social Security Disability Insurance, or SSDI, monthly benefits. SSDI rules allow recipients to work or earn income and still receive SSDI payments each month. However, if your income surpasses a certain threshold, your SSDI monthly benefits will be reduced.

Natural Gas Royalties as Income

The main reason that people sell their mineral rights is because they want a sure thing. Whether it is to pay off a mortgage, money for retirement, or to pay for a child’s education, there are any number of reasons to cash out your minerals. The peace of mind that comes from a huge check is more than enough reason for most.

Knowing the Risks

Landowners who lack the assets and the equipment to extract oil and natural gas from their land often lease property and extraction rights to companies that are capable of removing the oil or natural gas. In return, the company pays the landowner a royalty on the gross revenue that it receives from the sale of the oil or natural gas. The Internal Revenue Service and the Social Security Administration, or SSA, consider oil and natural gas royalties to be unearned taxable income. As a result, if you receive SSDI benefits, you are required to report such income to the SSA. If you are an SSDI recipient, most of the income you earn will reduce your monthly benefit.

Substantial Earnings

While you can earn additional income and receive benefits at the same time, your earnings must remain below the substantial earnings threshold, which the SSA sets each year. As of October 2011, earnings that surpass $1,000 a month are considered substantial; the threshold for blind recipients is $1,640 a month. SSDI recipients who receive substantial earnings from oil and natural gas royalties can no longer receive SSDI benefits.

Sell your mineral rights

You may have the option to sell your mineral rights rather than leasing them. If you do, you will lose future royalties. You will retain rights to the surface property and buildings on it, but the rights to and profits from all minerals below the surface will belong to whomever you sell them to. In most cases, the sale of property is considered a transfer of resources rather than a gain in resources. Selling your mineral rights will not in and of itself affect your eligibility for SSI. If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income.

 

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