SSR 88-9a: SECTIONS 203(b) AND (f) OF THE SOCIAL SECURITY ACT (42 U.S.C. 403(b) AND (f)) WORK DEDUCTIONS -- RENEWAL COMMISSIONS OF SELF-EMPLOYED CASUALTY INSURANCE SALESMEN

20 CFR 404.429(b)(2)(ii)

: The claimant, who was born on January 13, 1911, was a self-employed casualty insurance salesman whose first month of entitlement to old-age insurance benefits (OAIB) was September 1974. The Social Security Administration determined that the claimant's benefits for the years 1979 through 1982 were subject to work deductions because of his excess earnings in those years. Sections 203(b) and (f) of the Social Security Act require deductions against earnings in excess of an amount considered exempt. The claimant appealed, contending that because virtually all of his income from self-employment for the years 1979 through 1982 was from renewal commissions on casualty insurance policies that he had sold prior to his first month of entitlement to OAIB, such income did not constitute earnings for deduction purposes under 20 CFR 404.429(b)(2)(ii). Despite the claimant's contention to the contrary, the AC observed, under the guidelines in 20 CFR 404.429(b)(2)(ii), that, in generating these renewals, the claimant had performed "significant services" after his first month of entitlement to OAIB. Consequently, the AC found that the renewal commissions for casualty insurance received by the claimant during the years 1979 through 1982 were countable for deduction purposes in the year of receipt, even if the original policies were sold prior to his first month of entitlement to OAIB. Accordingly, the AC held that work deductions were imposable against the claimant's benefits for the years 1979 through 1982 because of his excess earnings in those years.

The claimant was a self-employed casualty insurance salesman whose first month of entitlement to OAIB was September 1974. The evidence of record showed that he had reported self-employment income of $9,186 for 1979, $9,528 for 1980, $13,762 for 1981, and $7,663 for 1982^[1] to the Internal Revenue Service. When SSA notified the claimant that his benefits for the years 1979 through 1982 were subject to work deductions because of his excess earnings in those years, the claimant appealed. He contended that most of his income from self-employment for the years 1979 through 1982 was not attributable to "significant services" performed after September 1974, and thus was excludable, under § 404.429(b)(2)(ii) of Regulations No. 4, in determining his gross earnings for deduction purposes for those years. Not counted as "significant services" for a nonfarmer under that section of the regulations are those activities that are related solely to protecting an investment in a currently operating business or that are too irregular, occasional, or minor to be considered as having a bearing on the income received.

The claimant maintained that he had written little new insurance since 1977 and that virtually all of his business for the years 1979 through 1982 consisted of renewal commissions on policies that he had written before 1977. The processing of such renewals was automated. His health had been poor since 1977, as he had suffered from both a heart and a lung condition. He stated that all he had to do to earn the commissions was to go to the office twice a week for an hour to an hour and a half, look over the computer renewals, and file them away. While he stated that the renewal accounts had been decreasing, his gross receipts had been rising since 1977.

The AC concluded that the claimant had not shown that he had not rendered "significant services" in self-employment during the years in question, even assuming, arguendo, that virtually all of his business for the years 1979 through 1982 consisted of renewal commissions on casualty insurance policies that he had first written prior to September 1974. All of the examples provided in § 404.429(b)(2)(ii)(B) of Regulations No. 4 anticipate that the self-employed individual will perform only occasional, irregular, or minor services and that most of the work will be performed by others. In this case, the claimant did all of the work (albeit not particularly difficult work), as evidenced by the fact that he did not have employees or outside contractors. His expenses for an automobile, entertainment, promotions, and other travel also suggested that the claimant had more than a passive role with respect to his business.

In addition, the AC did not believe that it was pertinent that much of the claimant's business for the years 1979 through 1982 had consisted of renewals of casualty insurance policies that he had written prior to 1977, as renewals of casualty insurance policies are generally not similar to renewals of life insurance policies. The AC noted that casualty insurance differs from life insurance in a number of ways: it covers a different risk, it has a shorter duration (terms of 6 to 12 months subject to new terms upon expiration), and there is generally is no vested right to the renewal commission for the salesman who sold the first policy. In other words, while a life insurance salesman could receive a renewal commission for no reason other than that he or she was the one who had sold the first policy, a casualty insurance salesman would have no such right, unless he or she had performed some service in obtaining the renewal. In effect, the casualty insurance salesman generally sells a new policy each time the insurance is renewed.

Consequently, none of the commissions received by the claimant in this case could be excluded from consideration as earnings for deduction purposes. The AC thus found that the claimant had earnings of $9,186 in 1979, $9,528 in 1980, $13,762 in 1981, and $13,090 in 1982. Since the annual earnings limitation was $4,500 in 1979, $5,000 in 1980, $5,550 in 1981, and $6,000 in 1982, the AC concluded that deductions on account of work were imposable against the claimant's benefits for such years, in light of the earnings that had been established for the claimant in this case.

^[1] The Social Security Administration subsequently determined that the claimant had additional net earnings from self-employment of $5,427 for 1982; therefore, the claimant's 1982 earnings for deduction purposes were $13,090.

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