TN 26 (07-12)
RS 02501.021 The Earnings Test (ET)
A. Introduction to the ET
Social Security benefits replace, in part, earnings lost to a beneficiary or family because of the beneficiary’s retirement, disability, or death. We use the ET to measure the:
extent of a beneficiary's retirement and determine the amount, if any, to be deducted from monthly benefits of the wage earner and auxiliaries, and
earnings of auxiliary and survivor beneficiaries to determine the amount of benefits payable to them.
The law provides for a two-tier earnings test:
One test for beneficiaries under full retirement age (FRA), and
One test for beneficiaries who attain FRA during the year.
For information on FRA, see RS 00615.003.
B. Applying the earnings test (ET)
Beneficiaries may receive Social Security retirement, dependent, or survivor benefits and work at the same time. Under the earnings test, we will reduce a beneficiary’s monthly benefits by the amount of his or her excess earnings if the beneficiary is under or in the year of FRA. The earnings we apply to the ET include wages, self-employment income, or both. For additional information on calculating excess earnings, see RS 02501.080.
Neither the earnings test (ET) nor the monthly earnings test (MET) applies to a beneficiary who has no excess earnings, unless non-service months apply in the grace year.
1. What earnings to count for the annual earnings test (AET)
a. Beneficiary under FRA
If under FRA, count the beneficiary’s earnings for all months of his or her taxable year to determine excess earnings even though he or she may not be entitled to benefits during all the months of that year.
b. Beneficiary in the year of FRA
In the year of FRA, count the beneficiary’s earnings for all months of his or her taxable year up to but not including the month of FRA to determine excess earnings even though he or she may not be entitled to benefits during all the months of that year.
For more information on exempt amounts, refer to RS 02501.025B.1.
2. Monthly earnings test (MET)
The MET applies to specific years, known as grace years. When applying the MET to beneficiary’s earnings, consider the following:
For beneficiaries under FRA, use the entire year’s income to calculate the amount of excess earnings. In the year a beneficiary reaches FRA, use the earnings for all months up to but not including the month of FRA to calculate excess earnings; and
Regardless of the excess earnings amount, pay full benefits for any month the beneficiary neither earns wages higher than the monthly exempt amount nor performs substantial services in self-employment. To determine substantial services in self-employment, see RS 02505.065. For information on grace years, see RS 02501.030B.
For additional information on applying the monthly earnings test, see RS 02501.030 or for the monthly exempt amounts, see RS 02501.025.
3. FRA when applying AET for RIB and WIB
Always use the FRA for retirement insurance benefits (RIB) when applying the AET for RIB or widow(er)’s insurance benefits (WIB). Although FRA for WIB may be earlier, the FRA for RIB is controlling for AET purposes. This rule applies even if the beneficiary is not entitled to RIB.
4. The deduction rate for AET
The age of the beneficiary determines the rate at which we deduct excess earnings from his or her benefits. For beneficiaries who:
have not reached their year of FRA, deduct $1 from benefits for each $2 earned over the annual exempt amount.
are in the year they attain FRA, count only earnings before the month of attainment of FRA and deduct $1 from benefits for each $3 earned over the full annual exempt amount in the months prior to FRA.
For additional information on exempt amounts and deduction rates, refer to RS 02501.025D.
5. Who is not subject to the ET
The ET generally does not apply to disabled beneficiaries, divorced spouses who might otherwise be offset based on the number holder’s (NH) earnings, or beneficiaries working outside the U.S. However, there are exceptions for these types of cases as discussed in RS 02501.021B.5.a. in this section.
a. When ET does not apply to disabled beneficiaries
The ET does not apply to beneficiaries receiving:
Disability insurance benefits (DIB),
Disabled widow(er) benefits (DWB), and
Childhood disability benefits (CDB).
We apply the ET to DIB auxiliary beneficiaries who have earnings; and
If the beneficiary is simultaneously entitled to RIB and DIB benefits, the ET applies to any month the beneficiary elects to receive the RIB even though entitlement to DIB technically continues.
If a disabled beneficiary performs any work activity, we look at that activity to determine whether the disability has ceased. For additional information on the suspension of DIB payments because of work activity, see DI 10105.095.
b. When ET does not apply to divorced spouses
The ET does not apply to divorced spouses based on the wage earners excess earnings if the:
wage earner is entitled to benefits prior to the month of divorce; or
wage earner’s month of entitlement (MOE) is in the month of divorce or later and the spouse has been divorced from the wage earner for at least 2 years.
c. When ET does not apply to foreign work
The ET does not apply to a beneficiary who works outside the U.S. when Social Security does not cover the work. However, the ET does apply to covered work that a beneficiary performs outside of the U.S.
For additional information on working outside the U.S., see RS 02605.000
6. When the ET no longer applies
Effective 1/2000, the ET no longer applies to a beneficiary beginning in the month he or she attains FRA. For a history of how the ET has evolved, refer to the following:
ET applied to all beneficiaries; then
The Social Security Amendments of 1950 provided an exemption for beneficiaries age 75 and over; then
Before 1983, the ET no longer applied at age 72; then
Before 2000, the ET no longer applied at age 70