SSR 62-60: Section 203. — Work Deductions—Excess Earnings in Short Taxable Year
20 CFR 404.415
In 1960 a man 65 years old was entitled to old-age insurance benefits of $119 per month, and his wife was entitled to wife's insurance benefits of $59.50 per month. He rendered substantial services in self-employment in all months of 1961 until his death on October 29, 1961. His earnings for 1961 were $1935. Held, because of deductions required under section 203 by the man's work and earnings in 1961, no benefits were payable for January, February, or March 1961; and for April 1961, an old-age insurance benefit of $19.40 and a wife's insurance benefit of $9.70 were payable. Benefits for months after April 1961 were not subject to deduction.
A worker, C, became entitled under section 202(a) of the Act to old-age insurance benefits of $119 per month beginning April 1960, the month in which he attained age 65. His wife, L, became entitled on his earnings record to wife's insurance benefits under section 202(b) of $59.50 per month, beginning October 1960, when she attained age 65. A self-employed barber, C reported his earnings on a calendar year basis for income tax purposes. He worked full-time in his barber shop until a week before his death on October 29, 1961, and had net earnings from self-employment of $1935 for 1961. His wife was neither employed nor self-employed during 1961.
Because of C's death, entitlement to both the old-age and wife's insurance benefits ended with September 1961, the month before the month he died; and L became entitled beginning with October 1961 to widow's insurance benefits of $98.20 per month.
The question to be decided is what deductions, if any, are required against C's and L's benefits for 1961 because of C's work and earnings.
Section 203 provides, in effect, that if a beneficiary is charged with "excess earnings" for a month in a taxable year ending after June 30, 1961, a work deduction equal to the amount charged must be made from his benefits for that month. A person entitled to benefits under section 202 has excess earnings in a taxable year when his earnings for that year exceed $100 times the number of months in that year. However, of the first $500 by which his earnings exceed this amount, only $1 is chargeable as excess for each $2 of earnings; and $1 is chargeable for each $1 of earnings over and above this first $500.
Excess earnings can be charged, and work deductions imposed, only for months in which the working beneficiary is entitled to benefits, is under age 72, and has either rendered substantial services in self-employment or has rendered services for wages of over $100. Any chargeable excess is charged to the first such month in the beneficiary's taxable year, the amount charged being the amount of his benefit for that month. However, if any other persons are entitled to benefits for that month. However, if any other persons are entitled to benefits for that month on his earnings record, deductions are made from all such benefits: the excess is charged against all the benefits in an amount equal to the total amount of such benefits; but if the chargeable excess is less than the total amount of the benefits, the difference is payable to all person entitled on his earnings record in amounts proportionate to their benefit rates.
If there is any chargeable excess remaining, after benefits for the first such month have thus been reduced to zero, the remainder of the excess is similarly charged against benefits for the second chargeable month, and so on, until either the total of the excess has been charged or there are no more months in the taxable year to which the excess may be charged. Under section 215(g), any benefits which, after deductions, is not a multiple of 10 cents, must be raised to the next higher multiple of 10 cents.
Section 211(e) provides, in effect, that an individual's "taxable year" shall, for purposes of the act, be the same taxable year used in computing his income tax under the Internal Revenue Code. Under the Code, a person's taxable year ends with his death. Thus, where a person's death occurs within the tenth month of the taxable year, there will be only 10 calendar months covered by his last taxable year.
Accordingly, there are 10 months (January-October) in C's 1961 taxable year. His excess earnings chargeable against his and L's benefits for these months must, under section 203, be determined from the $935 difference between $1935 (his earnings for the taxable year 1961) and $1000 ($100 times the 10 months in his taxable year). The first $500 of this $935 difference gives rise to $250 in excess chargeable against benefits; all of the remaining $435 is chargeable, making a total of $685 excess earnings chargeable to months in this taxable year. Since C's entitlement to benefits terminated with September 1961, no excess earnings are chargeable and no work deductions can be made because of C's work and earnings against L's benefits for October 1961 or subsequent months. However, the excess may be charged, if sufficient in amount, to all months beginning with January and ending with September 1961, since throughout all such months C was entitled to benefits, was under age 72, and rendered substantial services in self-employment.
The $685 excess is chargeable (and deductions must be imposed) against both C's and L's benefits at the rate of $178.50 per month (the sum of their benefits, $119 plus $59.50) for January, February, and March 1961. The remaining excess of $149.50 must be charged against their benefits for April 1961, in amounts proportionate to their benefit rates. Since C's benefit rate of $119 is twice the amount of L's rate of $59.50, he is due $19.33 of the $29 payment for April 1961 and L is due $9.67 of this payment. Under section 215(g), these amounts must be raised to the next higher multiple of 10 cents, $19.40 and $9.70, respectively.
Accordingly, it was held that, because of deductions required by C's work and earnings in 1961, no old-age or wife's insurance benefit was payable on C's earnings record for the months January, February, or March 1961; and that for April 1961 the old-age insurance benefit payable was $19.40 and the wife's insurance benefit payable was $9.70. No work deductions were applicable for subsequent months. For each month May through September 1961 the old-age insurance benefit payable was $119 and the wife's insurance benefits payable was $59.50; beginning October 1961 the widow's insurance benefit payable was $98.20.