SSR 82-2: SECTIONS 203(B) and (f), and 210(j), and 211(a) (42 U.S.C. 403(b) and (f), 410(j), and 411(a)) WORK DEDUCTIONS -- EARNINGS FROM SELF-EMPLOYMENT AS A SALES REPRESENTATIVE
20 CFR 404.415, 404.430, 404.1005, 404.1007, 404.1008(e), and 404.1080(a)
SSR 82-2
- The claimant has received old-age insurance benefits since 1973, the year he became age 65, and his wife has received wife's insurance benefits on his earnings record since 1974. When the Social Security Administration (SSA) determined that the claimant had wages for deduction purposes in 1978 of $5,173.06 and that he and his wife had been overpaid $585.90 for that year due to his excess earnings, the claimant filed an appeal. The record shows that the claimant retired in 1973 and performed his subsequent sales activities on only a part-time basis beginning in 1976. Held, the claimant's testimony regarding the nature of his sales activities and the corroborating documentary evidence established that this 1978 income of $5,173.06 represented gross earnings from self-employment and not wages. The claimant;s net earnings from self-employment, computed in accordance with section 203(f)(5)(B) and 211(a) of the Social Security Act, were $3,438.43, and amount less than the applicable exempt amount of $4,000.00. As the claimant did not have excess earnings in 1978, he and his wife were not overpaid for that year.
The general issue is whether the claimant had excess earnings in 1978. The issue needs to be resolved to determine whether the claimant, who receives old-age insurance benefits, and his wife, who receives wife's insurance benefits on his earnings record, were overpaid in 1978.
The claimant, who was born on September 11, 1908, has received old-age benefits based on an application filed July 2, 1973, and his wife, who was born on October 12, 1912, has received wife's insurance benefits on his earnings record based on an application filed June 1, 1974. In 1979, the claimant and his wife were notified that an overpayment in the amount of $585.90 had been incurred on the claimant's earnings record because of his excess earnings in 1978. Specifically, SSA determined that the claimant's excess earnings resulted from his wages during 1978 in the gross amount of $5,173.06.
The claimant testified that he worked for a certain company as a products planner and sales liaison until his retirement on January 30, 1973. He explained that this activity did not involve selling, but that it did involve the role of liaison between the business and salespeople. He testified that, beginning in 1976, he became self-employed on a part-time basis as a sales representative for several companies, including the company he retired from in 1973. The claimant stated that he had to maintain an office in his home, purchase samples and office equipment, maintain secretarial services, and manage his schedule. He also reported that he received no benefits from his former employer, except for a retirement pension based solely upon his employment prior to his retirement in 1973. Finally, he explained that he held himself out to the business community as a representative of several business lines.
Section 203(b) of the Act provides that deductions "shall be made from any payment or payments under this title to which an individual is entitled, and from any payment or payments to which any other persons are entitled on the basis of such individual's wages and self-employment income,..."if the individual receives "excess earnings."
Section 203(f)(3) of the Act defines an individual's "excess earnings" as "50 per centum of his earnings for such year in excess of the product of the applicable exempt amount...multiplied by the number of months in such year..." As provided in section 203(f)(8)(D)(i) of the Act, the applicable exempt amount for an individual who has attained age 65 before the close of a taxable year ending in 1978 is $333.33 for each month of that year. Therefore, if such an individual's taxable year is a calendar year, the individual will have excess earnings in 1978 if his or her earnings for that year exceed $4000 (12 x $333.33 ).
Section 203(f)(5)(A) of the Act states that "an individual's earnings for a taxable year shall be (i) the sum of his wages for services rendered in such year and his net earnings from self-employment for such year, minus (ii) any net loss from self-employment for such year."
Section 210(j) of the Act defines "employee" as (1) any officer of a corporation; or (2) an employee under the "usual common law rules;" (3) (A) an agent-or commission-driver, (B) a full-time life insurance salesman, (C) a home worker, or (D) "a traveling or city salesman...engaged upon a full-time basis in the solicitation on behalf of, and the transmission to, his principal (except for side-line sales activities on behalf of some other person) of orders from wholesalers, retailers...or other similar establishments for merchandise for resale or supplies for use in their business operations; if the contract of service contemplates that substantially all of such services are to be performed personally by such individual; except that an individual shall not be included in the term 'employee' under the provisions of this paragraph if such individual has a substantial investment in facilities used in connection with the performance of such services (other than in facilities for transportation), or if the services are in the nature of a single transaction not part of a continuing relationship with the person for whom the services are performed."
Section 211(a) of the act defines "net earnings from self-employment" as "the gross income, as computed under Subtitle A of the Internal Revenue Code of 1954, derived by an individual from any trade or business carried on by such individual, less the deductions allowed under such subtitle which are attributable to such trade or business..."
Section 211(c) of the Act essentially defines "trade or business" with reference to Section 162 of the Internal Revenue Code of 1954.
Section 404.1008(e) of Regulations No. 4 provides that "If you take orders for a number of persons or firms as a 'multiple line' salesman, you are not a traveling or city salesman."
A common-law employee is described in § 404.1007 of Regulations No. 4, which provides that -
- "(a) General . . .
- In general, you are a common-law employee if the person you work for may tell you what to do and how, when, and where to do it . . . .
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(b) Factors that show employee status . . .
- (1) The person you work for may fire you.
- (2) The person you work for furnishes you with tools or equipment and a place to work.
- (3) You receive training from the person you work for or are required to follow that person's instructions.
- (4) You must do the work yourself.
- (5) You do not hire, supervise, or pay assistants. . .
- (6) The person you work for sets your hours of work, requires you to work full-time, or restricts you from doing work for others.
- (7) The person you work for pays your business or traveling expenses.
- (8) You are paid by the hour, week or month.
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(c) Factors that show self-employment status. . .
- (1) You make a profit or suffer a loss.
- (2) You are hired to complete a certain job and if you quit before the job is completed you may be liable for damages.
- (3) You work for a number of persons or firms at the same time.
- (4) You advertise to the general public that you are available to perform services.
- (5) You pay your own expenses and have your own equipment and work place. . ."
As indicated by the above provisions of the Act, an individual who was at least age 65 in 1978 was permitted to earn as much as $4,000 in that year before the amount of the benefits paid on his earnings record would be reduced because of "excess earnings." The claimant has alleged that his 1978 income of $5,173.06 represents gross earnings from self-employment, and he has asserted that reduction of that sum by his business expenses in the amount of $1,688.63 places his net self-employment income safely under the $4,000 exempt amount. Such a circumstance would necessarily eliminate the existence of excess earnings and the resulting overpayment for 1978.
Evaluation of the claimant's credible testimony and the corroborating documentary evidence satisfactorily establishes that the claimant's 1978 income resulted from self-employment and that his net income from that self-employment was safely under the $4,000 ceiling. With respect to the definition of an "employee" in section 210(j) of the Act, the claimant was not a corporate officer, agent- or commission-driver, or life insurance salesman. Nor was the claimant a "full-time" traveling salesman within the intent of that provision since he was a "multiple line" salesperson who took orders from several firms (see § 404.1008(e) of Regulations No. 4). Finally, the claimant was not an "employee" under the common law rules because he furnished his own tools and work place, brought his expertise to the job and was not trained by a principal, and was not subject to specific direction by the businesses whose products he represented. The claimant set his own work hours, represented several businesses, and was not reimbursed for his business expenses. Unlike the traditional employee, his earnings were generated solely by his commission from sales; he was not guaranteed a minimum income; and he received no health or other noncommission benefit. The claimant held himself out to the public as an independent contractor for several business lines, and he retained secretarial services at his own expense and discretion.
The conclusion that the claimant was legitimately engaged in self-employment is corroborated by statements from knowledgeable corporate officials. Finally, this conclusion is consistent with the claimant's uncontested testimony that he retired in 1973 and has performed his subsequent sales activities on only a part-time basis since 1976.
Since the claimant's gross earnings in 1978 resulted from self-employment, sections 203(f)(5) and 311(a) of the Act requires reduction of that amount by the allowable deductions attributable to the business. Those deductions have been itemized and clearly and convincingly show that the claimant incurred $1,688.63 in allowable business expenses during 1978. Therefore, the claimant's net income from self-employment in 1978 was $3,484.43, which is less than the $4,000 exempt amount.
In view of the above findings, it is the decision of SSA that the claimant did not have excess earnings in 1978 and that an overpayment on his earnings record was not incurred in that year.