1807.Grace Year and Non-Service Month Defined
1807.1What is a grace year?
A “grace year” is the first year you receive your full benefit amount for any month of entitlement in that year that has a non-service month before the month of FRA.
1807.2What is a non-service month?
A “non-service month” is a month you do not:
Perform substantial services in self-employment; and
Do not have earnings from employment that are more than the monthly exempt amount.
1807.3When are you entitled to a grace year?
You are entitled to a grace year under the following circumstances:
The first year you have at least one non-service month and the non-service month is before the month of FRA is a grace year;
If you are entitled to one type of benefit (e.g., mother's) and then have a break in entitlement of at least one month before becoming entitled to a different type of benefit (e.g., widow's): the first year you are entitled to the second benefit in which you have at least one non-service month is a grace year.
If you are entitled to benefits as a child, a young wife or husband with a child in care, a mother or a father: the year that your entitlement ends is an additional grace year, unless entitlement ends:
Because of death; or
Because you are entitled to another type of benefit with no break in entitlement.
1807.4How is substantial services determined for a self-employed beneficiary?
We determine whether you, as a self-employed beneficiary, perform “substantial services” by the actual service you perform, not by the amount of profit or loss. In applying this test, we consider the following factors:
The amount of time you devote to the trade or business. Generally, services of 45 hours or less in a month are not considered substantial. However, as few as 15 hours of service a month could be substantial if, for example, the hours:
Involved management of a sizeable business; or
Were spent in a highly skilled occupation.
Note: Services of less than 15 hours a month are never considered substantial.
The nature of the services;
The relationship of the activities performed before retirement to those performed after retirement; and
Other circumstances, such as:
The amount of capital you invested in the business;
The type of business establishment;
The presence of a paid manager, partner, or family member who manages the business; and
The seasonal nature of the business.
1807.5What are the monthly exempt amounts?
The monthly exempt amounts that apply to earnings from employment for years 1985 through 2011 are listed in the chart below.
Under Age 65
Year of Full Retirement Age
Prior to Year of Full Retirement Age
1807.6What is your benefit amount when the monthly earnings test applies?
When the monthly earnings test applies, regardless of the amount of annual earnings, you receive full benefits for any month that:
Your earnings do not exceed the monthly exempt amount; and
You do not perform substantial services in self-employment.
Note: Earnings for the entire year, i.e., January through December, are always used to determine the maximum amount we withhold from benefits if you are under FRA. However, the monthly test prevents us from withholding benefits for months that meet the above rules.
Last Revised: Aug. 8, 2011