SSR 74-1a: SECTIONS 203(b), 203(f), and 204(b) (42 U.S.C. 403(b) and (f); 404(b)). -- DEDUCTIONS ON ACCOUNT OF WORK -- DEFERRED COMPENSATION -- ADJUSTMENT OR RECOVERY OF OVERPAYMENT
20 CFR 404.1026
- Where at time worker applied for benefits, she failed to advise Social Security Administration of facts which she knew affected payment of benefits in that she did not report that anticipated receipt of year-end "bonus" of several hundred dollars was based on percentage of annual profits, or that "bonus" could exceed her salary, or that she did not intend to limit work activities in such year, all of which she knew, held, so called "bonus" represented deferred payment of wages for which services were rendered in each month of year; therefore, "bonus" is properly allocable to each of 12 months of year in which it was earned and, since it caused worker's earnings to exceed exempt amount in each month, and since worker knowingly failed to disclose pertinent facts at time of application, she was not "without fault" in creating overpayment, and therefore, adjustment or recovery of overpayment may not be waived.
R, the worker, filed application for widow's insurance benefits at age 62 in August 1968, stating that her 1968 earnings would total $3000, but that beginning with such month she would limit her earnings to $140 a month (the maximum earnings then permissible without adjustment in benefits). Subsequently, R filed an annual report for 1968 showing total earnings of $3180 and earnings of $140 or less in each month August 1968 through November 1968. She estimated that her 1969 earnings would be under $1680. The annual report for 1969 showed total earnings of $3480 and monthly earnings of $140 or less in all months except December 1969. She explained that she received a Christmas bonus in December each year.
The evidence of record shows that prior to her "retirement" she continued to work the same hours as before and received only $140 a month or approximately $34 a week. The evidence also shows that at the same time R's salary increased approximately $600 over her salary for years prior to 1968. R explained that she made this arrangement with her employer so that she would not lose benefits and that she had explained this arrangement at the time she filed application for widow's benefits.
The issues are whether R's benefits for August 1968 through December 1969 are subject to deductions and whether she earned over $140 in wages in each month of that period. If it is determined that R received an overpayment of benefits a determination must be made whether adjustment or recovery of that overpayment is appropriate.
Section 203(b) of the Social Security Act provides, as pertinent here, that deductions from benefit payments shall be made by the Secretary in such amounts and at such time as he determines based on excess earnings chargeable under section 203(f) of the Act.
Section 203(f) of the Act as applicable to the taxable years 1968 and 1969 provided that an individual could earn $1680.00 in a twelve month taxable year without loss of benefits. Earnings in excess of $1680.00 are chargeable at the rate of $1.00 for each $2.00 of the first $1200.00 and $1.00 for $1.00 of the remainder of such earnings against benefits payable for each month in which the individual was under 72 and worked for wages of over $140.00. An individual would be presumed to have rendered services of more than $140.00 until it was shown to the satisfaction of the Secretary that such individual did not render services for such amount.
Social Security Administration Regulations No. 4, section 404.1026 provides, as pertinent here, that the name by which remuneration for employment is designated is immaterial; thus salaries, fees, bonuses or commissions are wages within the meaning of the Social Security Act if paid as compensation for employment. Also, the basis upon which remuneration is paid is immaterial; thus, it may be paid hourly, daily, weekly, monthly, annually or based on a percentage of the profits.
Section 204(b) of the Act provides that there shall be no adjustment or recovery in any case where an incorrect payment has been made if the individual is without fault and recovery or adjustment would defeat the purpose of title II or be against equity and good conscience.
Subsequent evidence introduced on R's behalf indicates that during any future twelve month period a probability existed that she would receive a bonus of several hundred dollars payable in a single month. This bonus was based on a percentage of profits, but there is no indication that R included this fact in her initial application for benefits. While it is quite possible that she received advice about a hypothetical earnings situation, it is apparent from the record that a complete disclosure of facts was not made. At the time of her application, R failed to explain that the bonus was based on the profits realized by her employer, or that the amount could exceed the amount of salary paid to her during the rest of the year, or that she did not plan to limit her work activities.
It is apparent from the record that R knowingly arranged her salary payments so as to avoid work deductions against her social security benefits. Her contentions that she did not actually receive more than $140 per month for any month except December of each year do not fulfill either the spirit or the letter of her obligation under the law.
The so called "bonus" represents a deferred payment of wages part of which she earned in each month of the year. While R was paid $140 or less per month for the period in question except for December of 1968 and 1969, deductions are based on when the payments were earned. Accordingly, the "bonus" paid in December for each of the years 1968 and 1969 should properly be allocated to all twelve months of such year.
Based on the evidence of record, R had earnings of $3180 for 1968. She worked for and earned over $140 in August through December 1968. She had earnings of $3480 in 1969 and earned over $140 in all months of that year. R is not "without fault" in creating the overpayment of benefits inasmuch as she failed to make a complete disclosure to the Social Security Administration of pertinent facts concerning her earnings, which facts she then knew.
Accordingly, the Appeals Council held that R had excess earnings in 1968 and 1969, that she earned over $140 in each month of those years, and that adjustment or recovery must be made of the overpaid benefits.
 Effective January 1973, the annual exempt amount of earnings was increased from $1,680 to $2,100. The exempt amount of wages an individual may earn in a month and receive full social security benefits for the month was raised from $140 to $175. Beginning January 1974, the annual and monthly amounts are further raised to $2400 and $200, respectively.