Source: http://www.federalregister.com/Browse/Document/usa/na/fr/2005/5/19/05-9994
Timestamp: 2019-04-22 13:13:55+00:00

Document:
These final rules amend our regulations to conform to the "Senior Citizens' Freedom to Work Act of 2000." This legislation was enacted on April 7, 2000, and became retroactively effective on January 1, 2000. It eliminates the Social Security annual earnings test for retirement beneficiaries, starting from the month in which they reach full retirement age. Before the passage of this legislation, persons reaching full retirement age were subject to an earnings test until the month in which they attained age 70.
Effective Date: These rules are effective June 20, 2005.
Dorothy Skipwith, Social Insurance Specialist, Office of Income Security Programs, Social Security Administration, Cubicle # 128, RRCC, 6401 Security Boulevard, Baltimore, Maryland 21235-6401, 410-965-4231 or TTY 410-966-5609. For information on eligibility or filing for benefits: Call our national toll-free numbers, 1-800-772-1213 or TTY 1-800-325-0078, or visit our Internet web site, Social Security Online, at http://www.socialsecurity.gov.
Electronic Version: The electronic file of this document is available on the date of publication in the Federal Register on the Internet site for the Government Printing Office, http://www.gpoaccess.gov/fr/index.html . It is also available on the Internet site for SSA ( i.e. , Social Security Online) at http://www.socialsecurity.gov/regulations/final-rules.htm.
In addition to the revisions required by the "Senior Citizens' Freedom to Work Act of 2000," which eliminated the annual earnings test for persons reaching full retirement age, we have made changes necessitated by the "Social Security Amendments of 1983," Public Law 98-21. This legislation increases the full retirement age for persons born in 1938 or later in incremental amounts, with a full 2-year increase in full retirement age for persons born in 1960 or later. We have also revised the existing regulatory sections to present them in plain language and to update the examples.
The following is a brief summary of the sections we have revised and the changes to each of them.
Section 404.338 Widow's and widower's benefits amounts . This section describes the benefit amount a widow or widower may expect to receive relative to the benefit amount of the deceased insured spouse. The benefit amount for the widow or widower may include increased benefits based on delayed retirement credit of the deceased insured spouse, or reduced benefits based on the deceased insured spouse retiring before reaching full retirement age. This section also discusses widow or widower benefits based on a special primary insurance amount when the insured died before reaching age 62.
We have revised this section to reflect the change in full retirement age.
Sections 404.415 and 404.416 Deductions because of excess earnings; annual earnings test. Amount of deduction because of excess earnings. We have combined §§ 404.415 and 404.416 into a new § 404.415, "Deductions because of excess earnings," because the topics are closely related and overlapping.
3. An auxiliary beneficiary because of his/her own excess earnings, which reduce only that beneficiary's benefits.
The new § 404.415 also reflects the legislated changes in full retirement age and annual earnings test.
Section 404.428Earnings in a taxable year. This section clarifies the method for calculating a beneficiary's or prospective beneficiary's annual earnings with respect to the annual earnings test. It also clarifies when the claimant may use a taxable year other than a calendar year, and the number of months in a taxable year used in the earnings test calculation for the year of death. This section also defines which reporting year wage earners and self-employed individuals must use relative to the year in which the earnings were earned.
This section is revised to reflect changes in the annual earnings test and full retirement age.
Section 404.429Earnings; defined. This section defines wages and net earnings from self-employment for earnings test purposes. It also lists the self-employment occupations that are included in "net earnings from self-employment" for earnings test purposes. This section also defines the allowable level of a claimant's involvement and performance in an ongoing business in determining whether the claimant's retirement actually has taken place.
The section is revised to reflect the new annual earnings test and full retirement age legislation.
Section 404.430Excess earnings defined for taxable years ending after December 1972; monthly exempt amount defined. This section defines the maximum monthly and annual amounts of earnings that can be earned by retirement and survivor beneficiaries without the earnings causing a reduction in their benefits. It then delineates the reduction if these earning limits are exceeded, as a proportion of the amount of earnings that are above those limits.
We have revised this section by changing the section heading to "Monthly and annual exempt amounts defined; excess earnings defined," and deleting obsolete material. This section also reflects the changes in the annual earnings test and full retirement age, and displays annual earnings test exempt amounts for 2000 through 2005.
Section 404.434Excess earnings; method of charging. This section describes the method of charging estimated excess earnings of an insured person and also the excess earnings of a beneficiary. Although the excess earnings may not completely eliminate the benefits to be paid on the insured's record, all the estimated earnings of the calendar (or fiscal) year are charged to the earlier months of the year. This may eliminate benefits for those earlier months, and may allow full benefits in the later months of the year. This section also states that if both the insured and other(s) receiving benefits on an insured's record have excess earnings, the excess earnings of the insured are first charged to the total family benefits payable (or deemed payable), and then the excess earnings of the secondary beneficiary are charged against that secondary beneficiary's remaining benefits. This section also clarifies that the excess earnings of a person receiving benefits on another's record only diminish or eliminate the benefits of that beneficiary; they do not affect the benefits of the insured or those of others receiving benefits on the insured's record.
We revised this section to be consistent with the rule in § 404.415(b) regarding divorced spouses by adding a cross-reference to that section. We have rewritten this section in plain language.
Section 404.435Excess earnings; months to which excess earnings cannot be charged. This section lists the situations in which a person's excess earnings in a month are not counted to cause reductions in benefits. The section defines the grace year and the termination grace year, and delineates the circumstances where a person can have more than one grace year. The section cites examples to clarify these concepts.
This section also states the presumption that an individual was engaged in self-employment and/or performing services for wages each month in a taxable year in which such earnings are reported until the individual provides evidence to the Social Security Administration about non-earning months in that year.
We have rewritten this section in plain language, updated outdated examples, deleted obsolete material, and changed the heading to "Excess earnings; months to which excess earnings can or cannot be charged; grace year defined," to reflect the change in the full retirement age.
Section 404.437Excess earnings; benefit rate subject to deductions because of excess earnings.
This section delineates the various benefit reduction factors to which a beneficiary may be subjected.
We have rewritten the section by using simpler, clearer language. We also revised the section heading to "Excess earnings; benefits subject to deductions because of excess earnings."
Section 404.452Reports to Social Security Administration of earnings; wages; net earnings from self-employment. This section contains the reporting requirements and conditions under which Social Security survivor and retirement beneficiaries, who have not yet reached full retirement age, are required to report earnings to the Social Security Administration. The purposes of these reports are: (1) To enable the Social Security Administration to adjust the monthly benefit amounts that may have been affected by the earnings test and (2) to establish whether a grace year has occurred because the earnings of a beneficiary fell below the earnings test amount. This section also conveys what reporting formats are acceptable, the filing deadlines and possible extensions, and the reporting requirements of persons receiving benefits on behalf of others (representative payees).
We have rewritten this section to reflect changes in the full retirement age and to reflect section 309(c) of Public Law 103-296, the Social Security Independence and Program Improvements Act of 1994, which eliminates an exception to the requirement to file an annual report for beneficiaries under age 70 receiving auxiliary or survivor's benefits when there are auxiliary or survivor beneficiaries living in a separate household, and deleted obsolete material.
On August 25, 2003, we published a notice of proposed rulemaking in the Federal Register at 68 FR 50985 and provided a 60-day period for interested individuals and organizations to comment. We received one comment from an individual concerning this action. Following is a summary of the comment and our response.
Comment: This commenter states that the original premise of social security was only to pay benefits to replace income that was reduced or lost because of retirement, death or disability. The commenter believes that the original basic rules and premise to receive benefits has been broken, as a result of eliminating the earnings test at age 65.
Response: The elimination of the earnings test at full retirement age is in accordance with Public Law 106-182 and our regulations must reflect the terms of the statute.
1. Revised § 404.338 by removing the phrase "widow's and widower's" and the word "the" when referring to benefits and replacing them with the word "your".
2. Revised §§ 404.338, 404.415, 404.428, 404.429, 404.430, 404.434, 404.435, 404.437, and 404.452 by making the cross reference to the "full retirement age" rule more specifically 404.409(a).
3. Clarified § 404.430(a)(2) to explain that when we determine the earnings test exempt amounts each year, the exempt amount so determined must be greater than or equal to the corresponding exempt amount in effect for months in the taxable year in which the exempt amount determination is being made.
4. Updated the chart in § 404.430(a)(2)(iii) to add the exempt amounts for 2004 and 2005.
5. Clarified § 404.434(b) by adding a cross-reference to § 404.415(b) for the effect on divorced wife's and divorced husband's benefits.
6. Clarified § 404.435(b)(4) Example 2 by revising the reason for a child's benefit termination.
We have consulted with the Office of Management and Budget (OMB) and determined that these final regulations meet the requirements for a significant regulatory action under Executive Order 12866, as amended by Executive Order 13258. Thus, they were subject to OMB review.
We certify that these final regulations will not have a significant economic impact on a substantial number of small entities because they affect only individuals. Therefore, a regulatory flexibility analysis, as provided in the Regulatory Flexibility Act, as amended, is not required.
The Paperwork Reduction Act (PRA) of 1995 says that no persons are required to respond to a collection of information unless it displays a valid OMB control number. In accordance with the PRA, SSA is providing notice that the OMB has approved the information collection requirements contained in sections 404.428(b), 404.429(d), 404.435(d)-(e) and 404.452(a)-(e) of these final rules. The OMB Control Number for these collections is 0960-0676, expiring October 31, 2006.
Administrative practice and procedure in the federal old age, survivors and disability insurance program: Earnings coverage; Insured status; Computation of and eligibility for benefits.
§ 404.338 Widow's and widower's benefits amounts.
(a) Your monthly benefit is equal to the insured person's primary insurance amount. If the insured person dies before reaching age 62 and you are first eligible after 1984, we may compute a special primary insurance amount to determine the amount of the monthly benefit (see § 404.212(b)).
(b) We may increase your monthly benefit amount if the insured person delays filing for benefits or requests voluntary suspension of benefits, and thereby earns delayed retirement credit (see § 404.313), and/or works before the year 2000 after reaching full retirement age (as defined in § 404.409(a)). The amount of your monthly benefit may change as explained in § 404.304.
(c) Your monthly benefit will be reduced if the insured person chooses to receive old-age benefits before reaching full retirement age. If so, your benefit will be reduced to the amount the insured person would be receiving if alive, or 82 1⁄2 percent of his or her primary insurance amount, whichever is larger.
Secs. 202, 203, 204(a) and (e), 205(a) and (c), 222(b), 223(e), 224, 225, 702(a)(5) and 1129A of the Social Security Act (42 U.S.C. 402, 403, 404(a) and (e), 405(a) and (c), 422(b), 423(e), 424a, 425, 902(a)(5) and 1320a-8a.).
§ 404.415 Deductions because of excess earnings.
(a) Deductions because of insured individual's earnings. Under the annual earnings test, we will reduce your monthly benefits (except disability insurance benefits based on the beneficiary's disability) by the amount of your excess earnings (as described in § 404.434), for each month in a taxable year (calendar year or fiscal year) in which you are under full retirement age (as defined in § 404.409(a)).
(b) Deductions from husband's, wife's, and child's benefits because of excess earnings of the insured individual. We will reduce husband's, wife's, and child's insurance benefits payable (or deemed payable-see § 404.420) on the insured individual's earnings record because of the excess earnings of the insured individual. However, beginning with January 1985, we will not reduce the benefits payable to a divorced wife or a divorced husband who has been divorced from the insured individual for at least 2 years.
5. Section 404.416 is removed.
§ 404.428 Earnings in a taxable year.
(a) When we apply the annual earnings test to your earnings as a beneficiary under this subpart (see § 404.415), we count all of your earnings (as defined in § 404.429) for all months of your taxable year even though you may not be entitled to benefits during all months of that year. (See § 404.430 for the rule that applies to the earnings of a beneficiary who attains full retirement age (as described in § 404.409(a))).
(c) The month of death is counted as a month of the deceased beneficiary's taxable year in determining whether the beneficiary had excess earnings for the year under § 404.430. For beneficiaries who die after November 10, 1988, we use twelve as the number of months to determine whether the beneficiary had excess earnings for the year under § 404.430.
(d) Wages, as defined in § 404.429(c), are charged as earnings for the months and year in which you rendered the services. Net earnings or net losses from self-employment count as earnings or losses in the year for which such earnings or losses are reportable for Federal income tax purposes.
(a) General . The term "earnings" as used in this subpart (other than as a part of the phrase "net earnings from self-employment") includes the sum of your wages for services rendered in a taxable year, plus your net earnings from self-employment for the taxable year, minus any net loss from self-employment for the same taxable year.
(d) Presumptions concerning wages . For purposes of this section, when reports received by us show that you received wages (as defined in paragraph (c) of this section) during a taxable year, it is presumed that they were paid to you for services rendered in that year unless you present evidence to our satisfaction that the wages were paid for services you rendered in another taxable year. If a report of wages shows your wages for a calendar year, your taxable year is presumed to be a calendar year for purposes of this section unless you present evidence to our satisfaction that your taxable year is not a calendar year.
§ 404.430 Monthly and annual exempt amounts defined; excess earnings defined.
(a) Monthly and annual exempt amounts. (1) The earnings test monthly and annual exempt amounts are the amounts of wages and self-employment income which you, as a Social Security beneficiary, may earn in any month or year without part or all of your monthly benefit being deducted because of excess earnings. The monthly exempt amount, (which is 1⁄1 of the annual exempt amount), applies only in a beneficiary's grace year or years. (See § 404.435(a) and (b)). The annual exempt amount applies to the earnings of each non-grace taxable year prior to the year of full retirement age, as defined in § 404.409(a). A larger "annual" exempt amount applies to the total earnings of the months in the taxable year that precedes the month in which you attain full retirement age. The full annual exempt amount applies to the earnings of these pre-full retirement age months, even though they are earned in less than a year. For beneficiaries using a fiscal year as a taxable year, the exempt amounts applicable at the end of the fiscal year apply.
(i) To calculate the lower exempt amount (the one applicable before the calendar year of attaining full retirement age) for any year after 1994, we multiply $670 (the lower exempt amount for 1994) by the ratio of the national average wage index for the second prior year to that index for 1992. If the amount so calculated is not a multiple of $10, we round it to the nearest multiple of $10 ( i.e. , if the amount ends in $5 or more, we round up, otherwise we round down). The annual exempt amount is then 12 times the rounded monthly exempt amount.
(b) Method of determining excess earnings for years after December 1999. If you have not yet reached your year of full retirement age, your excess earnings for a taxable year are 50 percent of your earnings (as described in § 404.429) that are above the exempt amount. After December 31, 1999, in the taxable year in which you will reach full retirement age (as defined in § 404.409(a)), the annual (and monthly, if applicable) earnings limit applies to the earnings of the months prior to the month in which you reach full retirement age. Excess earnings are 33 1/3 percent of the earnings above the annual exempt amount. Your earnings after reaching the month of full retirement age are not subject to the earnings test.
§ 404.434 Excess earnings; method of charging.
(a) Months charged. If you have not yet reached your year of full retirement age, and if your estimated earnings for a year result in estimated excess earnings (as described in § 404.430), we will charge these excess earnings to your full benefit each month from the beginning of the year, until all of the estimated excess earnings have been charged. Excess earnings, however, are not charged to any month described in §§ 404.435 and 404.436.
(2) Excess earnings of beneficiary other than insured individual. We will charge a beneficiary, other than the insured, $1 for each $1 of the beneficiary's excess earnings (see § 404.437). These excess earnings, however, are charged only against that beneficiary's own benefits.
(3) You, the insured individual, and a person entitled (or deemed entitled) on your earnings record both have excess earnings. If both you and a person entitled (or deemed entitled) on your earnings record have excess earnings (as described in § 404.430), your excess earnings are charged first against the total family benefits payable (or deemed payable) on your earnings record, as described in paragraph (b)(1) of this section. Next, the excess earnings of a person entitled on your earnings record are charged against his or her own benefits remaining after part of your excess earnings have been charged against his/her benefits (because of the reduction in the total family benefits payable). See § 404.441 for an example of this process and the manner in which partial monthly benefits are apportioned.
(c) Earnings test applicability. Public Law 106-182 eliminated the Social Security earnings test, beginning with the month in which a person attains full retirement age (as defined in § 404.409(a)), for taxable years after 1999. In the year that you reach full retirement age, the annual earnings test amount is applied to the earnings amounts of the months that precede your month of full retirement age. (See § 404.430). The reduction rate for these months is $1 of benefits for every $3 you earned above the earnings limit in these months. The earnings threshold amount will be increased in conjunction with increases in average wages.
§ 404.435 Excess earnings; months to which excess earnings can or cannot be charged; grace year defined.
(iii) Do not work in non-covered remunerative activity on 7 or more days in a month while outside the United States. A non-service month occurs even if there are no excess earnings in the year.
(b) Grace year defined. (1) A beneficiary's initial grace year is the first taxable year in which the beneficiary has a non-service month (see paragraph (a)(7) of this section) in or after the month in which the beneficiary is entitled to a retirement, auxiliary, or survivor's benefit.
(2) A beneficiary may have another grace year each time his or her entitlement to one type of benefit ends and, after a break in entitlement of at least one month, the beneficiary becomes entitled to a different type of retirement or survivors benefit. The new grace year would then be the taxable year in which the first non-service month occurs after the break in entitlement.
(3) For purposes of determining whether a given year is a beneficiary's grace year, we will not count as a non-service month, a month that occurred while the beneficiary was entitled to disability benefits under section 223 of the Social Security Act or as a disabled widow, widower, or child under section 202.
(4) A beneficiary entitled to child's benefits, to spouse's benefits before age 62 (entitled only by reason of having a child in his or her care), or to mother's or father's benefits is entitled to a termination grace year in any year the beneficiary's entitlement to these types of benefits terminates. This provision does not apply if the termination is because of death or if the beneficiary is entitled to a Social Security benefit for the month following the month in which the entitlement ended. The beneficiary is entitled to a termination grace year in addition to any other grace year(s) available to him or her.
Don, age 62, will retire from his regular job in April of next year. Although he will have earned $15,000 for January-April of that year and plans to work part time, he will not earn over the monthly exempt amount after April. Don's taxable year is the calendar year. Since next year will be the first year in which he has a non-service month while entitled to benefits, it will be his grace year and he will be entitled to the monthly earnings test for that year only. He will receive benefits for all months in which he does not earn over the monthly exempt amount (May-December) even though his earnings have substantially exceeded the annual exempt amount. However, in the years that follow, up to the year of full retirement age, only the annual earnings test will be applied if he has earnings that exceed the annual exempt amount, regardless of his monthly earnings amounts.
Marion was entitled to mother's insurance benefits from 1998 because she had a child in her care. Because she had a non-service month in 1998, 1998 was her initial grace year. Marion's child turned 16 in May 2000, and the child's benefits terminated in April 2000. Marion's entitlement to mother's benefits also terminated in April 2000. Since Marion's entitlement did not terminate by reason of her death and she was not entitled to another type of Social Security benefit in the month after her entitlement to a mother's benefit ended, she is entitled to a termination grace year for 2000, the year in which her entitlement to mother's insurance benefits terminated. She applied for and became entitled to widow's insurance benefits effective February 2001. Because there was a break in entitlement to benefits of at least one month before entitlement to another type of benefit, 2001 will be a subsequent grace year if Marion has a non-service month in 2001.
(c) You worked in self-employment. You are considered to have worked in self-employment in any month in which you performed substantial services (see § 404.446) in the operation of a trade or business (or in a combination of trades and businesses if there are more than one), as an owner or partner even though you had no earnings or net earnings resulting from your services during the month.
(d) Presumption regarding work in self-employment. You are presumed to have worked in self-employment in each month of your taxable year until you show to our satisfaction that in a particular month you did not perform substantial services (see § 404.446(c)) in any trades and businesses from which you derived your annual net income or loss (see § 404.429).
(e) Presumption regarding services for wages. You are presumed to have performed services in any month for wages (as defined in § 404.429) of more than the applicable monthly exempt amount in each month of the year, until you show to our satisfaction that you did not perform services for wages in that month that exceeded the monthly exempt amount.
§ 404.437 Excess earnings; benefit rate subject to deductions because of excess earnings.
(d) Your entitlement to benefits payable (or deemed payable) to you based on the earnings record of an individual entitled to a disability insurance benefit because of that individual's entitlement to workers' compensation (see § 404.408).
§ 404.452 Reports to Social Security Administration of earnings; wages; net earnings from self-employment.
(a) Reporting requirements and conditions under which a report of earnings, that is, wages and/or net earnings from self-employment, is required. (1) If you have not reached full retirement age (see § 404.409(a)) and you are entitled to a monthly benefit, other than only a disability insurance benefit, you are required to report to us the total amount of your earnings (as defined in § 404.429) for each taxable year. This report will enable SSA to pay you accurate benefits and avoid both overpayments and underpayments.
(2) If your wages and/or net earnings from self-employment in any month(s) of the year are below the allowable amount (see §§ 404.446 and 404.447), your report should include this information in order to establish your grace year (see § 404.435) and possible eligibility for benefits for those months.
(ii) Your benefit payments were suspended under the provisions described in § 404.456 for all months of a taxable year before the year of full retirement age, or for all months prior to your full retirement age in the full retirement age year, unless you are entitled to benefits as an auxiliary or survivor and your benefits are reduced for any month in the taxable year because of earnings and there is another person entitled to auxiliary or survivor's benefits on the same record, but living in a different household.
(d) Requirement to furnish requested information. You, the beneficiary (or the person reporting on his/her behalf) are required to furnish any other information about earnings and services that we request for the purpose of determining the correct amount of benefits payable for a taxable year (see § 404.455).
(e) Extension of time for filing report. (1) Request for extension to file report. Your request for an extension of time, or the request of your authorized agent, must be in writing and must be filed at a Social Security Administration office before your report is due. Your request must include the date, your name, the Social Security number of the beneficiary, the name and Social Security number of the person filing the request if other than the beneficiary, the year for which your report is due, the amount of additional time requested, the reason why you require this extension (see § 404.454), and your signature.
(2) Evidence that extension of time has been granted. If you do not receive written approval of an extension of time for making your report of earnings, it will be presumed that no extension of time was granted. In such case, if you do not file on time, you will need to establish that you had good cause (§ 404.454) for filing your report after the normal due date.

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