TN 12 (12-04)
RS 02605.005 Foreign Work Test
A. Procedure – When the Foreign Work Test Applies
Use the FWT for months after April 1983 as follows:
1. Months after April 1983
Apply deductions to any beneficiary who engages in noncovered remunerative activity outside the U.S. for any month:
in which benefits are not based on disability; and
which is prior to the month the beneficiary attains FRA (See RS 00615.003) or age 70 before January 2000; and
in which the work during the month exceeds 45 hours.
For any month the NH is subject to foreign work deductions, apply them to:
his spouse and children receiving benefits on his earnings record, and
a mother or childhood disability beneficiary whose original benefits continued after marriage to the NH.
EXCEPTIONS: Do not apply foreign work deductions to:
A divorced spouse who has been finally divorced from the NH for at least 2 continuous years for months after December 1984. See RS 02501.021B.5.b.
Auxiliary benefits when a deported NH works (see RS 02635.001B.3.).
Auxiliary benefits when the NH is subject to alien nonpayment (see RS 02610.001A.3.a.).
NOTE: For months after April 1983 and before September 1984:
Auxiliaries will only be subject to deductions for months in which the NH worked on any part of 7 or more days.
Beginning September 1, 1984, auxiliary benefits will be withheld on the same basis as primary benefits; i.e., for any month in which the NH worked for more than 45 hours.
EXAMPLE: Hans Hoffle, the retired NH, works for 8 hours on each of 6 days (48 hours) in June 1983. His wife and child get benefits on his earnings record. Hans is subject to work deductions for June (over 45 hours work), but his wife and child are not because Hans did not work on 7 or more days during June.
2. Months before May 1983
Use the FWT for months before May 1983 as follows:
Apply deductions to the benefits of any beneficiary who engages in noncovered remunerative activity outside the U.S. for any month in which:
benefits are not based on disability; and
the month is prior to the month the beneficiary attains age 70 (age 72 for months before January 1983); and
the work during the month occurred on 7 or more days.
For any month the NH is subject to foreign work deductions, apply deductions as described in RS 02605.005A.1.b.
Make no deductions if the person works on 6 or fewer days in a calendar month. Count as a day each day or any part of a day on which the beneficiary:
worked as an employee in noncovered employment outside the U.S., or
worked in a noncovered trade or business as a self-employed person outside the U.S.
NOTE: For months before May 1983, substitute the 7 day test for the 45 hour test wherever it appears below.
B. Procedure - Services as an Employee
1. Employment for More Than 45 Hours Per Month
Impose deductions for any month that the beneficiary worked in noncovered employment for more than 45 hours, and for all subsequent months until the beneficiary notifies us that he or she is no longer working for more than 45 hours a month or attains FRA.
2. Termination of Employment
Accept the beneficiary’s allegation that he or she has terminated his or her employment, and resume benefits on that basis.
Where a beneficiary alleges that his or her agreement with his or her employer calls for service of 45 hours or less in a month:
3. Temporary Absence
If a beneficiary in noncovered employment states that he or she was temporarily absent from work during periods of sickness, vacation, or the like, assume the employment relationship continued during such periods and impose work deductions.
4. Doubtful Employment Relationship
If in doubt as to the existence of an employment relationship, request the CA to develop the facts in accordance with RS 02101.800.
5. Employment for Less Than 45 Hours Per Month
If an employment agreement clearly calls for the performance of services by the employee for 45 hours or less in a month, and he or she does not perform services at times other than those called for by the agreement, do not apply deductions under the FWT based on that employment alone.
C. Definition – Self-Employment
An individual is self-employed on any day that he or she holds himself or herself out to the public as carrying on a trade or business, whether or not any services are actually rendered.
D. Policy - Engaging in Self-Employment
1. Trade or Business
A beneficiary who is the owner or part-owner of a trade or business outside the U.S. is subject to foreign work deductions if he or she works or holds himself or herself out to the public as available to work in excess of 45 hours a month. Mere ownership of the business is not sufficient to cause foreign work deductions; the individual must either work or be available to work in a functioning business for more than 45 hours a month.
2. Examples-Trade or Business
a. Beneficiary Holding Themselves Out For 45 Hours Or Less Of Work Per Month
A beneficiary in Canada is a semi-retired dentist. He has an office, a fully-equipped operatory, and a prominent sign announcing his business displayed above his shop. His business is even listed in the local phone book. However, he opens his office only on Wednesdays; i.e., he holds himself out to the public as available to work for only 8 hours a week, 32 hours a month [potentially 40 hours a month in “5-Wednesday” months.] He is not subject to foreign work deductions even though the business physically exists (and ownership of the business by the beneficiary continues) on every day of the month because it is not a functioning business except on Wednesdays; i.e., for 45 hours or less a month.
b. Beneficiary Holding Themselves Out For More Than 45 Hours Of Work Per Month
Even if he fails to attract a single patient throughout the entire month, he would be subject to foreign work deductions for that month, since he would be holding himself out as available to work in a business that functions each and every work day of that month.
c. Beneficiary Is Available For More Than 45 Hours Of Work Per Month
A beneficiary in Ireland owns a business which manufactures woolen sweaters. When he reached age 62, he cut back on the hours he devoted to running his business, even though the business continues to operate a full work schedule each weekday of the month. His son operates the business day-to- day, while the beneficiary only comes into the office 8 hours a week (32 hours a month). However, he has told his son that he is available for consultation, advice, supervision, etc. at any time. Even though the beneficiary does not actively participate in the management or supervision of the business for more than 45 hours a month, he has agreed to be available to do so for more than 45 hours a month. Therefore, he is subject to foreign work deductions for each month he is “on call” to help with the running of the business.
3. Personal Services Only
A beneficiary engaged in a trade or business involving only his or her own personal services (e.g., writer, consultant, buyer), is engaging in noncovered work activity only:
during those hours that he or she actually performs some service in his or her trade or business, or
when he or she actually holds himself or herself out to others as available to perform such services.
4. Examples-Personal Services Only
a. Businessman Holding Himself Out As Available For More Than 45 Hours Work Per Month
A businessman retires to the United Kingdom and wishes to share his years of business experience with those working in the local economy. He advertises his consulting skills in the local newspaper as well as in the telephone directory. He even has printed up and distributes handbills announcing his availability to consult on business matters. His advertisements make it clear that he is available to consult “at any time”; i.e., on each day of each week of the month. Since he is holding himself out to the public as available to consult for more than 45 hours a month, he is subject to foreign work deductions for that month.
b. Businessman Holds Himself Out For 45 Or Less Hours Of Work Per Month
Same facts as above, except that the retired businessman makes it clear in all his advertising (i.e., handbills, newspaper, and telephone book) that he will take phone calls at home from the public and actually consult on business matters only on Mondays. He is not subject to the FWT because he has carefully limited the hours that he is available to work to less than 45 a month.
5. Business Related Activities
A beneficiary who performs business-related activities; e.g., buying merchandise for a store, distributing flyers announcing a sale, etc., is engaging in self-employment during those hours he or she performs such activities.
NOTE: Since the FWT is a “time” test rather than a “cash” test, it is immaterial whether the self-employed person shows a profit or loss to be subject to this work test.
E. Procedure - Cessation of Self-Employment
1. Owner of A Trade or Business
If a beneficiary alleges he or she is no longer the owner or part-owner of a business after his or her first month of entitlement, have him or her submit evidence that he or she has disposed of the business (e.g., a contract of sale).
Do not routinely request evidence of the sale of a business when a claimant alleges his or her self-employment ended before his or her first month of entitlement. However, if information in the file raises some doubt regarding the allegation, request evidence of such a sale.
NOTE: If a beneficiary alleges that he or she has limited the number of hours that his or her business functions to 45 or fewer a month, but does not allege that his or her self-employment has ceased (see RS 02605.005D.2. Examples), request evidence to substantiate his or her claim. In the example cited, this could include verification that the office/factory/shop is only opened on certain days during the month as evidenced by phone bills, advertising, etc.
2. Personal Services Only
If a beneficiary alleges he or she is no longer self-employed, obtain his or her signed statement that he or she has neither rendered services nor held himself or herself out to the public as available to render services for more than 45 hours a month.
If circumstances raise doubt as to the accuracy of the statement, obtain corroborative evidence. For example, if the beneficiary alleges he or she can no longer work due to a change in health, but there is reason to doubt his or her statement, get evidence of physical impairment, poor health, etc.
3. Seasonal Business
A business is seasonal if it does not function for one or more months in a given year.
Do not subject a beneficiary to work deductions if he or she does not in any way hold himself or herself out as available to perform any business-related activity during such an inactive period.
Accept the beneficiary's allegation regarding his or her seasonal self-employment unless circumstances raise a doubt as to the accuracy of the allegation. In such cases, get corroborative evidence.
EXAMPLE: A beneficiary in Mexico owns a small farm on which he grows corn that he sells on the local market. From March through October of each year he spends more than 45 hours a month tending the soil, overseeing the farm operations, ordering supplies for the farm, transporting the corn to the market, and offering the corn for sale. From November through February his land lies fallow and, except for a few vegetables he grows for home consumption, the farm is inactive.
Since the beneficiary actively participates in the operation of the farm from March through October, he is subject to foreign work deductions for those months. Even though he still owned the farm for November through February, however, it was not a functioning business for those four months. Therefore, he is not subject to foreign work deductions for November through February.