The Skate Shop Kept His Name Over the Door After He Retired. His Unpaid Saturdays Put the Royalty at Risk With Social Security.
Licensing a name to a board company sounds like passive income until Social Security takes a closer look at those unpaid Saturday afternoons spent signing decks and coaching kids at the old shop.
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Picture a hypothetical man in his early sixties who ran the same skate shop in the same town for 30 years. He taught two generations of kids how to drop in, sponsored the local contest and sold trucks and grip tape at cost when a 14-year-old came up short. At 62, he sells the shop, licenses his name to a small board company for a signature deck and starts collecting Social Security.
His name stays over the door. On Saturday afternoons, he still wanders in, signs a few boards, talks to customers and coaches a kid through her first rock-to-fakie. Nobody pays him for those afternoons. He would probably show up for free even if the royalty checks stopped. That distinction matters, but it does not necessarily settle the issue.
A Royalty Can Sit on Either Side of the Line
The IRS generally reports royalties from copyrights, patents and name, image and likeness rights on Schedule E when they are not self-employment income. If someone is carrying on a trade or business connected with those rights, however, the royalty income can belong on Schedule C instead. For Social Security, that difference is critical. The retirement earnings test counts wages and net earnings from self-employment before full retirement age (FRA). It does not simply count every taxable dollar that reaches a retiree.
In 2026, someone under FRA for the entire year can have $24,480 of earnings before Social Security begins withholding $1 in benefits for every $2 above the limit. For someone born in 1960 or later, FRA is 67. A passive licensing royalty therefore looks very different from money generated through an ongoing business involving appearances, promotions, design work or other services.
The Unpaid Saturdays Can Still Matter
Social Security has another rule that makes his behavior after retirement worth watching. For certain self-employment income received after the initial year of entitlement, SSA can exclude income from the earnings test when it is not attributable to services performed after benefits began. The agency defines services as significant work in operating or managing a trade, profession or business that can be related to the income received. It also says activities that are irregular, occasional or minor may not count as significant services.
That makes frequency and purpose important. Dropping into the old shop twice a year to say hello is one thing. Showing up every Saturday to sign signature decks bearing his name, greet customers and help promote the brand begins to look different, particularly if those activities support the sales generating his royalty. The fact that he volunteers his time does not by itself answer whether the royalty is passive. Neither does the word “royalty” printed on the contract.
The First Retirement Year Has Another Test
His first year on Social Security adds one more wrinkle. SSA has a special monthly rule for people who retire during the year after already earning more than the annual limit. In 2026, someone under FRA can receive a full check for a month in which earnings are $2,040 or less and no substantial services are performed in self-employment.
For self-employment, Social Security generally considers more than 45 hours a month substantial, while 15 to 45 hours can qualify when the work involves a highly skilled occupation. A few leisurely Saturdays may therefore look very different from continuing to operate behind the scenes. Keeping track of the hours and what he actually does can matter as much as keeping the licensing agreement.
Make the Contract Match the Retirement
Before he licenses the name that spent 30 years building value, the paperwork and his actual involvement should point in the same direction.
- Separate payment for the name or trademark from payment for appearances, consulting, design work or promotion. If services are expected, spell them out instead of burying them inside one royalty percentage.
- Keep a simple record of post-retirement activity, including appearances, hours and what he did. That documentation can help distinguish an occasional visit from continued participation in a business.
- Have the tax treatment reviewed before the first check arrives. Whether the income belongs on Schedule E or Schedule C can determine whether it enters net earnings from self-employment in the first place.
His name can stay over the door after retirement. The question is whether Social Security sees it as a legacy or a business he is still helping run.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
