SSR 84-8a: SECTIONS 203(b) AND (f) (42 U.S.C. 403(b) AND (f)) WORK DEDUCTIONS -- TREATMENT OF INCOME FROM SELF-EMPLOYMENT ATTRIBUTABLE TO SERVICES PERFORMED IN A PRIOR YEAR
20 CFR 404.429(b)(2)(ii), 404.434(a), and 404.435
- The claimant's first month of entitlement to old-age insurance benefits (OAIB) was August 1977 but no benefits were payable since he continued to work full-time as a self-employed attorney. He stopped working on October 6, 1980. He was paid benefits for November and December of 1980 because, under 20 CFR 404.435(a)(7), they were "nonservice months" in his initial "grace year." In 1981, he claimant received $8,400 in net earnings from self-employment for work he had performed in 1980. The Social Security Administration (SSA) determined that the claimant's benefits for 1981 were subject to work deductions because of his excess earnings in that year. The claimant appealed, contending that his benefits for 1981 should not be subject to deductions because he had not worked during that year. Thus, all of the months in 1981 were nonservice months for the claimant. Held, imposition of work deductions for 1981 was correct because (1) the existence of nonservice months is material to a work deduction determination only when such months occur in a grace year, and (2) since the claimant's self-employment income for 1981 was attributable to service performed after his first month of entitlement to benefits, such income is required to be counted, for deduction purposes, as earnings for the year in which it was received.
The issue is whether work deductions can be imposed against the claimant's OAIB for 1981.
The claimant, who was born on August 23, 1912, filed an application for OAIB on October 13, 1977. He was awarded benefits effective August 1977, but no benefits were payable since he continued to work full-time as a self-employed attorney. The claimant stopped working on October 6, 1980, when he suffered a stroke, and benefits were paid to him for November and December of 1980. In 1981, the claimant received $8,500 in net earnings from self-employment for work he had performed in 1980 prior to his stroke. When SSA determined that the claimant's benefits for 1981 were subject to work deductions because of his excess earnings in that year, the claimant appealed. The contended that his benefits for 1981 should not be subject to deductions because he had not worked since suffering his stroke.
Section 404.415(a) of Regulations No. 4 provides that " . . . deductions are made from monthly benefits . . . payable to a beneficiary for each month in a taxable year . . . to which [the beneficiary's] excess earnings are charged under the provisions described in § 404.434."
Section 404.429(a) of Regulations No. 4 defines an individual's "earnings" for a taxable year as "the sum of his wages for services rendered in such year, and his net earnings from self-employment for the taxable year, minus any net loss from self-employment for the same taxable year."
Section 203(f)(3) of the Social Security Act (the Act) and § 404.430(a) of Regulations No. 4 define excess earnings. An individual's excess earnings for a taxable year fare 50 percent of his or her earnings (as described in § 404.429 of Regulations No. 4) for the year which are in excess of the product obtained by multiplying the number of months in that taxable year by the applicable monthly exempt amount. As provided in section 203(f)(8)(D)(iv) of the Act and in § 404.430(d)(1)(iv) of Regulations No. 4, the applicable monthly exempt amount for an individual who has attained age 65 before the close of a taxable year ending in 1981 is $458.33 1/3 for each month of that year. Therefore, is such an individual's taxable year is a calendar year, the individual will have excess earnings in 1981 if his or her earnings for that year exceed $5,500 (12 x $458.33 1/3).
Section 404.434(a) of Regulations No. 4 provides, in pertinent part, that "for purposes of imposing deductions . . . the excess earnings . . . of an individual are charged to each month beginning with the first month the individual is entitled in the taxable year in question and continuing, if necessary, to each succeeding month in such taxable year until all of the individual's excess earnings have been charged. Excess earnings, however, are not charged to any month described in § 404.435. . . ."
Section 404.435(a)(7) of Regulations No. 4 provides that no matter how much a beneficiary earns in a given taxable year, no deduction on account of excess earnings will be made in the benefits payable for any month which was a "nonservice" month in the beneficiary's "grace year."
Section 404.435(b) of Regulations No. 4 provides that a nonservice month is any month in which an individual does not work in self-employment and does not perform services for wages greater than the monthly exempt amount set for that month.
Section 404.434(c)(1) of Regulations No. 4 provides that a beneficiary's initial grace year is the first taxable year after 1977 in which the beneficiary has a nonservice month in or after the month in which he or she is entitled to a retirement, auxiliary, or survivor's benefit.
For purposes of determining work deductions, section 203(f)(5)(D)(ii) of the Act and § 404.429(b)(2)(ii) of Regulations No. 4 provide that income from self-employment received in a taxable year after the year of entitlement which is not attributable to services performed after the initial month of entitlement shall be excluded from gross earnings for such taxable year.
All of the months in 1981 were nonservice months for the claimant; however, under § 404.435(a)(7) of Regulations No. 4, nonservice months are material for purposes of imposing work deductions only when the occur in a grace year. In the claimant's case, his grace year was 1980 and benefits were paid to him for November and December of 1980 because they were nonservice months. Since 1981 was not a grace year for the claimant, the only factor that was material in determining whether his benefits for 1981 were subject to work deductions was whether he had excess earnings in that year.
Net earnings from self-employment are generally counted for deduction purposes in the taxable year in which they are received, with one exception. Section 203(f)(5)(D)(ii) of the Act, which is effective for years after 1977, specifically states that if an individual receives, in a year after his initial year of entitlement to benefits, any income from self-employment not attributable to services performed after the month in which he initially became entitled to benefits, this income shall be excluded from gross income for deduction purposes. In the claimant's case, the income from self-employment that he received in 1981 was attributable to the services he had performed in 1980, which was several years after his initial month of entitlement to benefits (August 1977). Therefore, that income was not excludable in determining the claimant's 1981 gross earnings for deduction purposes.
Because the claimant's 1981 earnings were $8,500, which exceeded the $5,500 limit provided in the law, his benefits for that year were properly subjected to work deductions, as required in § 404.434(a) of Regulations No. 4