SSR 87-14a: SECTIONS 203(b) AND (f) AND 210(j)(3)(B) OF THE SOCIAL SECURITY ACT (42 U.S.C. 403(b) AND (f) AND 410(j)(3)(B)) WORK DEDUCTIONS -- DETERMINING ANNUAL EARNINGS OF LIFE INSURANCE AGENTS
20 CFR 404.429(b)(2)(ii) and 404.1045
SSR 87-14a
- The claimant, who was born on November 12, 1915, applied for old-age insurance benefits (OAIB) in August 1980, electing reduced benefits as of February 2980. The Social Security Administration (SSA) subsequently determined that the claimant's 1980 earnings were $12,514 and that his 1981 earnings were $5,535. As a result, SSA notified the claimant that he had been overpaid OAIB for both of these years. The claimant appealed. contending that he had been a self-employed insurance agent throughout 1980 and 1981. The Appeals Council (AC) found that, while the claimant had sold life insurance policies as a self-employed agent for several other firms in 1980 and 1981, he had been employed, under 42 U.S.C. 410(j)(3)(B), as a full-time life insurance salesman for the XYZ Life Insurance Company from January 1980 through November 1980. The AC further found that it was not until December 1, 1980, the date a new contract with XYZ Life went into effect changing his status to a "part-time retired representative," that the claimant became strictly a self-employed insurance agent. In light of these findings, the AC held that the claimant's 1980 earnings for deduction purposes were $11,766. In accordance with SSR 71-22 (C.B. 1971-1975, p. 253), these earnings consisted of the following: (a) the amount of the original and anticipated renewal commissions earned by the claimant during the first 11 months of 1980 on XYZ life insurance policies he had sold as an employee for XYZ Life (with no evidence to the contrary, the AC assumed that the amount of the anticipated renewal commissions equaled the amount of the original commissions, following the usual industry pattern); (b) the first year commissions received by the claimant from XYZ Life in December 1980, when he was self-employed, reduced by one-twelfth of the business expenses attributable to 1980 XYZ Life sales activities (the balance of the business expenses attributable to XYZ Life sales activities could not be deducted from his 1980 earnings as an employee for that company because, under 20 CFR 404.1045, the company had not reimbursed him for any of those expenses); and (c) the net earnings from the claimant's other self-employment activities. The AC further held that the claimant's 1981 earnings for deduction purposes were $3,463. Because he was self-employed for that entire year, the AC determined his earnings by adding to the first year commissions received in 1981, as provided in 20 CFR 404.429(b)(2)(ii), the renewal commissions received during the year from policies sold as a self-employed agent after February 1980 (his first month of entitlement to benefits), and any net earnings derived from self-employment during 1981. Since the claimant's 1980 and 1981 earnings were $11,766 and $3,463, respectively, and since the exempt amounts for 1980 and 1981 were $5,000 and $5,500, respectively, the AC concluded that the claimant was overpaid OAIB for 1980 but not for 1981.
The issues before the AC were the amount of the claimant's earnings for 1980 and 1981, and whether work deductions were imposable against his OAIB for those years. If work deductions were imposable, an additional issue was whether the claimant was overpaid.
The claimant, who was born on November 12, 1959, filed an application for OAIB on August 22, 1980, electing reduced benefits effective with February 1980. SSA found that, in addition to having sold life insurance policies as a self-employed agent for several other firms in 1980 and 1981, the claimant had been employed as a full-time life insurance salesman for the XYZ Life Insurance Company during those years. SSA further found that, on his 1980 and 1981 annual reports, the claimant had excluded from this earnings (a) the renewal commissions earned on the policies he had sold for XYZ Life in 1980 and 1981, which was contrary to SSR 71-22 (C.B. 1971-1975, p. 253), and (b) the nonreimbursable business expenses he had allegedly incurred during those years in connection with his work for that company, which was contrary to § 404.1045 of Regulations No. 4. Since neither the claimant nor his employer submitted evidence of the amounts of the anticipated renewal commissions, SSA assumed that they equaled the amount of the original commissions, following the usual industry pattern. In light of these findings, SSA determined that the claimant's 1980 earnings were $12,514 and that his 1981 earnings were $5,535. When SSA notified the claimant that he had been overpaid OAIB for both of these years, the claimant appealed, contending that he had been a self-employed insurance agent throughout 1980 and 1981.
Section 203 (b)(1) of the Social Security Act (the Act) provides, in pertinent part, that "deductions . . . shall be made from any payment or payments under this title to which an individual is entitled . . . if . . . he is charged with excess earnings, under the provisions of subsection (f). . . ."
Section 203(f)(3) of the Act provides, in pertinent part, that an individual's excess earnings for a taxable year shall be 50 percent of the individual's earnings for such year in excess of the exempt amount applicable to that taxable year ($5,000 for individuals age 65 and over in 1980 and $5,500 for individuals age 65 and over in 1981).
Section 203(f)(5)(A) of the Act provides that "An individuals' 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)(3)(B) of the Act provides that the term "employee" means any individual who performs services for remuneration for any person as a full-time life insurance salesman.
Section 404.429(b)(2)(ii) of Regulations No. 4 provides, in pertinent part, that --
"An individual entitled to insurance benefits, under title II of the Act, other than disability insurance benefits or child's insurance benefits payable by reason of being under a disability, shall have excluded from gross earnings for any year after 1977 any self-employment income received in a year after his or her initial year of entitlement that is not attributable to services performed after the first month he or she became entitled to benefits. . . ."
Section 404.1045 of Regulations No. 4 provides that --
"Amounts that your employer pays you specifically -- either as advances or reimbursements -- for traveling or for other ordinary and necessary expenses incurred, or reasonably expected to be incurred, in your employer's business are not wages. The employer must identify these travel and other expenses either by making a separate payment or by specifically stating the separate amounts if both wages and expense allowances are combined in a single payment."
SSR 71-22 (C.B. 1971-1975, p. 253) provides that, if a life insurance sales man was an employee at the time of the sale of the original life insurance policy, both the original and renewal commissions are wages earned at the time of the sale; if the sales man was self-employed when the policy was sold, the original and renewal commissions are earnings for the year in which the salesman actually receives the commissions.
Since the evidence of record (including the claimant's testimony) showed that the claimant performed services for remuneration as a full-time life insurance salesman for the XYZ Life Insurance Company from January 1980 through November 1980, the AC found that he was an employee of that company during that period under section 210(j)(3)(B) of the Act. Effective December 1, 1980, the date a new contract with XYZ Life went into effect changing the claimant's status to that of a "part-time retired representative," the AC fund that the claimant was strictly a self-employed insurance agent.
The AC further found that work deductions were imposable against the claimant's OAIB for 1980 based on his earnings of $11,766 for that year. Under SSR 71-22, these earnings consisted of the following: (a) the amount of the original and anticipated renewal commissions earned by the claimant during the first 11 months of 1980 on XYZ life insurance policies he had sold as an employee for XYZ Life (with no evidence to the contrary, the AC assumed that the amount of the anticipated renewal commissions equaled the amount of the original commissions); (b) the first year commissions received by the claimant from XYZ Life in December 1980, when he was self-employed, reduced by one-twelfth of the business expenses attributable to 1980 XYZ Life sales activities (the balance of the business expenses attributable to 1980 XYZ Life sales activities could not be deducted from his 1980 earnings as an employee for that company because, under § 404.1045 of Regulations No. 4, the company had not reimbursed him for any of those expenses); and (c) the net earnings from the claimant's other self-employment activities.
The AC also found that the claimant's 1981 earnings for deduction purposes were $3,463. Because he was self-employed for that entire year, the AC determined his earnings by adding to the first year commissions received in 1981, as provided in § 404.429(b)(2)(ii) of Regulations No. 4, the renewal commissions received during the year from policies sold as a self-employed agent after February 1980 (his first month of entitlement to benefits), and any net earnings derived from self-employment in 1981.
Consequently, since the claimant's 1980 and 1981 earnings were $11,766 and $3,463, respectively, and since the exempt amounts for 1980 and 1981 were $5,000 and $5,500, respectively the AC concluded that the claimant was overpaid OAIB for 1980 but not for 1981.