TN 23 (04-11)
RS 02501.080 Calculating Excess Earnings
A. Policy for calculating excess earnings
1. Beneficiary is under full retirement age (FRA)
If the beneficiary is under FRA, he or she will lose benefits equal to 1/2 of the earnings over the exempt amount. Deduct $1 from benefits for every $2 earned over the exempt amount.
2. In the year the beneficiary attains FRA
In the year the beneficiary attains FRA, he or she will lose benefits equal to 1/3 of the earnings over the full annual exempt amount. Deduct $1 for every $3 of earnings for the months prior to FRA that are over the full annual exempt amount.
3. Beneficiary is FRA or older
Only wages and self-employment income for months before a beneficiary attains FRA count when determining excess earnings.
B. Procedure for calculating excess earnings
1. Beneficiary is under FRA
Determine the amount of earnings that is subject to the earnings test (ET). (See what constitutes earnings in RS 02505.005.)
Determine the annual and monthly exempt amount for the taxable year (TY) involved. (For the applicable exempt amounts, see the chart in RS 02501.025D.)
If the earnings are greater than the exempt amount, subtract the exempt amount from the amount of earnings for the TY.
Divide the remainder by 2, then round down to the next lower dollar, if the answer is not in whole dollars.
EXAMPLE: Beneficiary is age 64 in TY 1999. The 1999 earnings are $12,121. The excess amount is $1,260. ($12,121 earnings minus $9,600 exempt amount divided by 2 = $1,260 (rounded) excess earnings.
2. Excess earnings in the year of attainment of FRA
a. How to determine excess earnings
Determine the amount of earnings for the TY of FRA attainment by applying the rules in this section.
Subtract the full annual exempt amount from the amount of earnings. (For proper exempt amount, see the chart in RS 02501.025D.)
Divide the amount of earnings over the exempt amount by 3. The answer is the excess earnings. If the answer is not in whole dollars, round down to the next lower dollar.
b. Beneficiary has wages only
If the beneficiary earned wages only, exclude wages earned in or after the month of attainment of FRA.
EXAMPLE: The beneficiary attained FRA in 6/00. Earnings for January through May were $30,000 and another $10,000 was made June through December. Only $30,000 would count for ET, since the beneficiary earned $30,000 prior to FRA attainment. Earnings of $10,000 for June through December are not subject to ET, since the beneficiary attained FRA in June.
Compute excess earnings as follows:
$30,000 earnings minus $17,000 annual exempt amount divided by 3 equals $4,333 excess.
c. Beneficiary has net earnings from self-employment (NESE) only
If the beneficiary has NESE only, prorate the net earnings (or loss) equally over all months the beneficiary was engaged in self-employment (SE) to determine the monthly income. Multiply the monthly income by the number of months prior to the month of attainment.
EXAMPLE: Beneficiary's NESE for 2000 is $24,000 and the beneficiary is SE all months in the year and the beneficiary became FRA in June. The amount of NESE subject to the ET is $10,000 ($24,000 NESE divided by 12 months equal $2,000 x 5 months before FRA attainment, January through May, equal $10,000.)
NOTE: When cents are involved divide the amount by 12, then drop the cents, then round down before multiplying by the months before the beneficiary attains FRA.
Compute excess earnings as follows:
Earnings considered for ET are $10,000. Since the exempt amount is $17,000, the ET does not apply. Beneficiary can receive full benefits for all months of 2000.
d. NESE for some months of the TY
If the beneficiary was engaged in SE for some, but not all months of the TY, prorate the NESE over the months the beneficiary was self-employed.
EXAMPLE: Beneficiary's NESE for 2000 is $44,000. The beneficiary became self-employed in April and attained FRA in June. The amount of NESE subject to the ET is $9,776. ($44,000 NESE divided by 9 months (April through December) equals $4,888 a month x 2 months, 4/99 and 5/99, the months for which NESE was earned before FRA attainment.)
Compute the excess as follows:
The amount of earnings considered for ET is $9,776. Since the exempt amount is $15,500, the ET does not apply.
e. Beneficiary has both wages and NESE
If the beneficiary earned both wages and NESE, add the total wages earned in the months prior to the month of attainment plus the amount determined by prorating the NESE as shown in the preceding example.
EXAMPLE: Beneficiary attained FRA in 7/00. Wages for January through May are $24,000. She was SE June through December and earned NESE of $7,000. The amount subject to ET is $25,000. ($7,000 divided by 7 months equals $1,000 plus $24,000 in wages equals $25,000.)
Compute the excess earnings as follows:
$25,000 minus $17,000 exempt amount divided by 3 equals $2,666.
RS 02505.001, What Annual Earning Include-General