Where a beneficiary operated a business at a loss of $2,260 and worked as an employee for wages of $3,120 all within one taxable year of 12 months; held, his total earnings for the year for $860 (determined by subtracting the amount of his net loss in self-employment from the amount of his wages in employment) and, therefore, none of his benefits for that year were subject to deductions under section 203 of the Act.

J, a druggist, became entitled to benefits in the amount of $85 per month effective October 1958, when he was 65 years old. For some years J owned and operated a drugstore in Denver, Colorado, to which he devoted full time. He sold the store and business on June 22, 1960, because it was unprofitable. His taxable year 1960 was the calendar year. In this year his net loss from the business was $2,260. (This amount included a loss sustained on sale of his inventory when the business was sold). Early in July 1960, he secured employment and earned wages of $3,120 in the rest of the year. His earnings from employment in each of the months July through December were well over $100.

The question to be decided is what deductions, if any, must be imposed against J's benefits for the months of 1960, under section 203 of the Social Security Act. Under the provisions of that section, a person entitled to old-age insurance benefits can earn as much as $1,200 in a taxable year of 12 months and still receive all his benefits for that year. If such a beneficiary has total earnings from employment and self-employment which exceed $1,200 for the year, deductions for one or more months may be required. However, a deduction may not be made for a month in which the beneficiary is age 72 or over; nor may a deduction be made for a month in which the beneficiary neither worked as an employee for wages of more than $100 nor rendered substantial services as a self-employed person.

J rendered substantial services in self-employment in each of the 6 months January through June 1960 and rendered services for wages of over $100 for employment in each of the 6 months July through December 1960. Therefore, the decision as to what deductions, if any, must be imposed for months in 1960 depends upon the amount of J's earnings for that year.

Section 203(e)(4)(A) (redesignated section 203(f)(5)(A) by the Amendments of 1960) provides that a beneficiary's earnings for purposes of imposing deductions will be computed as follows:

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.

J's wages for 1960 were $3,120. His self-employment for that year resulted in a net loss of $2,260. Subtracting the net loss from the total wages to compute the earnings in accordance with the provisions cited above, J has earnings of $860 for the calendar year 1960. Since his earnings are less than $1,200 in this 12-month taxable year, it is held that J's benefits are not subject to deductions for any month of 1960 under section 203 of the Act.

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