A case from the 1980s, summarized below, deals with issues related to earning after one has begun retirement benefits.

Claimant began receiving social security retirement benefits in January 1979. He was 66 years old and working part-time. He made $2500 from his part-time work from January through June 1979. He made $200 in the month of July. He began working full-time as a professor in September and made $17,500 for the months From September through December 1979. He reported all of his earnings to Social Security, as he was required to do, and did not receive any benefits for the months of September through December 1979. This was because the amount of money he made precluded receipt of benefits for those months.

Later, he received a notice of overpayment from Social Security, informing him that he had been overpaid benefits for three months in 1979. He appealed the decision.

At a hearing, he argued that the amount of money he had spent out-of-pocket that year to set himself up in a private law practice that did not pan out, was a net loss from self-employment, which should be deducted from his earnings that year in determining his entitlement to benefits. He argued that this loss, in the amount of $827, should be spread out equally over the 12 months of the year, reducing his earnings each month in the amount of $68.91 per month. Using this method of calculation, he argued that his earnings from January through June were $347 per month, rather than $416 per month. Because the exempt amount for 1979 was $375 per month, there was no overpayment, he argued.

The Administrative Law Judge (ALJ) agreed with the claimant. He apportioned the $827 self-employment loss over all 12 months of the year and determined that claimant had sustained a loss of $68.91 in each month of the year. He subtracted the $68.91 from the $416 per month claimant had earned from January through June 1997 and determined that claimant had earned $347 per month for each of those months. Because this was less than the monthly exempt amount, the ALJ ruled that there had been no overpayment.

The Appeals Council, on its own motion, overturned the ALJ’s decision, stating that there was no regulatory or statutory basis to deduct self-employment losses from wages. Without deducting the self-employment losses, claimant’s wages from January through June 1979 were $416 per month, greater than the $375 per month exempt amount. The Appeals Council remanded the case to the ALJ with instructions to determine the exact amount of the overpayment and whether or not it should be waived. The claimant filed a federal court appeal.

The federal Magistrate Judge overturned the Appeals Council, ruling that the ALJ had made the correct decision and that, even if there had been an overpayment, it should have been waived. The Secretary of Health and Human Services appealed to the 6th Circuit Court of Appeals.

The 6th Circuit sided with the Appeals Council, holding that there was no statutory or regulatory basis to deduct self-employment losses from wages to determine monthly excess wages in the retiree’s grace year. The Court remanded to the ALJ for determination of the exact amount of the overpayment, and whether or not it should be waived.

See Whiteside v. Secretary of Health and Human Services, 534 F.2d 1289 (6th Cir. 1987). See also Social Security Ruling (SSR) 88-16c.

This old case illustrates the principle of excess earnings and the retirement earnings test exempt amount, which currently only applies to people below normal retirement age (NRA). There are two different exempt amounts — a lower amount for years before one reaches normal retirement age and a higher amount for the year in which one attains NRA. These amounts typically increase every year according to the national average wage index.

For people attaining NRA after the year 2018, the annual exempt amount in 2018 is $17,040 ($1,420 per month). For those attaining NRA in the year 2018 the annual exempt amount is $45,360, which applies to earnings only in the month leading up to the month in which one attains NRA.

Social Security withholds $1 in benefits for every $2 of earnings in excess of the lower exempt amount. Social Security withholds $1 for every $3 of earnings in excess of the higher earnings amount. Earnings in or after the month in which one attains NRA do not count toward the retirement earning test.

See https://www.ssa.gov/oact/cola/rtea.html

The retirement earnings test is applied on a monthly basis. This means that for any month a person earns less than the monthly exempt amount, they will receive their full retirement benefit, regardless of the amount of their yearly earnings. Earnings for the entire year; i.e. from January through December, are always used to determine the maximum amount Social Security withholds from benefits if a person is under full retirement age. But the monthly test prevents Social Security from withholding benefits for months in which the monthly earnings test is met.

It is also important to remember that benefits withheld while one is still working are not “lost.” Such benefits are recovered in the form of permanently increased benefits once one attains NRA.

This old case also mentions the “grace year.” The “grace year” is the year in which one receives their full benefit amount for any month of entitlement in that year that has a non-service month before the month of Full Retirement Age. A non-service month is a month in which the person does not: 1) perform substantial services in self-employment, and 2) does not have earning from employment that are above the monthly exempt amount.

See https://www.ssa.gov/OP_Home%2Fhandbook/handbook.18/handbook-1807.html

The significance of the grace year (usually the first year of retirement) is that it allows a person to receive their full social security retirement benefits for any whole month they are retired, regardless of their yearly earnings. This may come into play when a person retires in the middle of the year and has already earned more than the yearly earnings limit.

See https://faq.ssa.gov/link/portal/34011/34019/Article/3740/What-is-the-special-rule-about-earnings-in-the-first-year-of-retirement

This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.