Understanding Earnings in a Taxable Year for Social Security Beneficiaries, § 404.428

When it comes to Social Security benefits, understanding the annual earnings test and how it applies to beneficiaries is crucial.

In this blog post, we’ll break down Section 404.428 of the Social Security regulations and explain what you need to know about earnings in a taxable year.

What Counts as Earnings:

According to Section 404.428(a), all of your earnings (as defined in § 404.429) are counted for the annual earnings test, regardless of whether you are entitled to benefits during all months of that year. This rule also applies to beneficiaries who reach full retirement age (as described in § 404.409(a)).

Defining Your Taxable Year:

As per Section 404.428(b), your taxable year is presumed to be a calendar year unless you can prove otherwise. For self-employed individuals, the taxable year may differ depending on the Internal Revenue Code of 1986. The number of months in a taxable year is not influenced by:

1. The date a claim for Social Security benefits is filed;
2. Attainment of any particular age;
3. Marriage or the termination of marriage; or
4. Adoption.

Accounting for the Month of Death:

Section 404.428(c) states that the month of death is counted as a month of the deceased beneficiary’s taxable year when determining whether the beneficiary had excess earnings for the year under § 404.430. For beneficiaries who die after November 10, 1988, twelve is used as the number of months to determine whether the beneficiary had excess earnings for the year under § 404.430.

When Earnings are Charged:

Lastly, Section 404.428(d) explains that wages (as defined in § 404.429(c)) are charged as earnings for the months and year in which the services were rendered. Net earnings or net losses from self-employment count as earnings or losses in the year for which they are reportable for Federal income tax purposes.

Example: Jane’s Social Security Benefits and Earnings

Jane is a Social Security beneficiary who is 62 years old and works part-time. In 2023, she earns $25,000 from her job, and her full retirement age is 67.

According to the annual earnings test, Jane’s earnings from her job will be considered when determining her Social Security benefits for the year, even though she has not yet reached her full retirement age.

Jane’s taxable year is a calendar year since she has not provided evidence of having a different taxable year. Her earnings in 2023 will be counted for all 12 months of the calendar year.

In June 2023, Jane gets married. This event does not impact the number of months in her taxable year.

If Jane were to pass away in October 2023, the month of her death would still be counted as a month of her taxable year when determining if she had excess earnings under § 404.430. In this case, 12 months would be used to calculate whether Jane had excess earnings for the year.

The wages Jane earned from her part-time job in 2023 are charged as earnings for the months and year she worked. If Jane also had net earnings from self-employment, those earnings would be counted in the year they are reportable for Federal income tax purposes.

By understanding how her earnings in a taxable year affect her Social Security benefits, Jane can make better decisions regarding her work and financial planning.

Conclusion: Understanding how earnings in a taxable year are calculated for Social Security beneficiaries is essential for making informed decisions about your benefits. Familiarize yourself with these regulations to ensure you’re accurately reporting earnings and maximizing your potential benefits.

https://www.ssa.gov/OP_Home/cfr20/404/404-0428.htm