TN 26 (07-12)
RS 02501.030 Applying the Monthly Earnings Test (MET)
A. Introduction to the MET
The MET allows payment of benefits to a beneficiary even if he or she has substantial earnings prior to the month of entitlement (MOE). It allows a beneficiary who returns to substantial work later in that year to keep the benefits paid during those months when he or she was not working.
The MET applies when an entitled beneficiary has one or more non-service months (NSM) in a grace year. For information on grace years, see RS 02501.030B. For a definition of NSM, see RS 02501.030C.
A beneficiary generally does not have the option of determining the year the MET applies or of concealing NSMs to retain use of the MET in a more advantageous year. For options on choosing the year NSMs apply, see RS 02501.070.
B. Policy for grace years when MET applies
A grace year is a taxable year (TY) in which the MET applies. There are three types of grace years:
1. Initial grace year
A beneficiary's initial grace year is the first TY he or she has an NSM:
Example of determining the initial grace year:
A beneficiary becomes entitled to benefits 01/11. He will attain FRA in 08/11. He states he is working but will not earn over the monthly exempt amount for 06/11 and 07/11. Since 06/11 and 07/11 are NSMs, the initial grace year is 2011.
2. Grace year following a break in entitlement
A beneficiary may have another grace year(s) the first year he or she meets the following conditions:
becomes entitled to a different type of benefit (i.e., retirement, wife's, husband's, child's, widow's, widower's, mother's, father's, or parent's);
there is a break in entitlement of at least 1 month; and
a TY of entitlement to a different type of benefit includes a NSM.
Example of a break in entitlement after a grace year:
A beneficiary becomes entitled to mother's benefits in 2010 and has a NSM that year. Her initial grace year is 2010. Her mother's benefits terminate in 06/10. In 2011, she becomes entitled to a retirement insurance benefit (RIB) on her own earnings record (ER). Because she became entitled to a different type of benefit after a break in entitlement of a least 1 month, the MET will apply again in the first year as a RIB that she has a NSM.
3. Termination grace year for auxiliary beneficiaries
A termination grace year is the taxable year (TY) an auxiliary beneficiary's entitlement ends. The auxiliary beneficiary's entitlement ends with the month before the termination month. Therefore, the termination grace year is the year that contains the month before the month of termination.
a. Eligibility for a termination grace year
A beneficiary is eligible for a termination grace year in the year entitlement to any of these types of auxiliary benefits terminates:
Child's benefits as defined in section 202(d) of the Social Security Act (the Act),
Young wife's or young husband's benefits as defined in section 202(b) and 202(c) of the Act, or
Mother's or father's benefits as defined in section 202(g) of the Act.
b. When termination grace years do not apply
The termination grace year does not apply when entitlement ends because the auxiliary beneficiary either:
becomes entitled to another type of Social Security benefit without a break in entitlement, or
we convert young wife’s or husband’s benefits to spouse’s benefits at age 62 or older.
Failure to have an entitled “child-in-care” does not qualify the mother or father, young wife or husband to a termination grace year since not having a “child-in-care” causes a suspension of benefits rather than termination. For additional information on the documentation required for spouse’s benefits after entitlement ends, refer to RS 00202.055 through RS 00202.075.
c. Examples of cases involving termination grace years
Example of Child benefits
A beneficiary’s date of birth is 01/20/92 and attains age 18 in 01/10. If the beneficiary is neither a student nor disabled, his or her benefits terminate in 01/10. Since entitlement ends in 12/09, which is the month before the termination month, his or her termination grace year is 2009.
Example of Child benefits with several grace years
A beneficiary entitled to child's benefits in 2008 at age 16 has a NSM in the same year, which becomes his initial grace year. The benefits terminate in 03/10 after attaining age 18 making 2010 a termination grace year. The beneficiary becomes entitled to child's benefits beginning 09/10 when he returns to school as a full-time student, which does not eliminate 2010 as a termination grace year. His benefits terminate again 04/11 because he is no longer a full-time student. The year 2011 is another termination grace year.
4. Applying a grace period for Retirement (RIB) and Disability Insurance Benefits (DIB) beneficiaries
A grace year does not apply to a disabled beneficiary in any year if entitled solely to DIB, disabled widow(er)'s (DWB), or childhood disability benefits (CDB). If the beneficiary becomes simultaneously entitled to RIB and DIB benefits, the earnings test (ET) applies to any month he or she elects to receive RIB. Consider all earnings for that year to determine deduction months when we pay RIB benefits. Count NSMs for any month the RIB applies.
Example of a beneficiary entitled to RIB and DIB simultaneously:
The beneficiary becomes entitled to RIB and DIB simultaneously in 06/10 at age 62. She elects to receive the reduced RIB benefit amount. The ET applies to any month she receives a RIB benefit. Her initial grace year is 2010 with NSMs of 06/10 through 12/10. She then elects to receive DIB instead of RIB in 01/11. The ET does not apply beginning 2011 since she receives DIB, although the RIB entitlement technically continues. Effective 01/12 she elects to receive RIB benefits with the ET applying for that year. However, her initial grace year was in 2010 and the MET will not apply to any other year.
C. Policy for determining NSM
A NSM is any month of entitlement, before FRA, that an entitled beneficiary neither earns wages of more than the monthly exempt amount nor performs substantial services in self-employment. A NSM exists whether or not the beneficiary:
has excess earnings for the year,
receives a payment based on the NSM, or
waives payment for the NSM.
For specifics on determining substantial services, see RS 02505.065. To determine annual and monthly exempt amounts, see RS 02501.025.
Example of determining NSMs for a retirement beneficiary:
A beneficiary who works for wages becomes entitled to benefits beginning 02/11. He earned $40,000 in 2011 but did not earn over the monthly exempt amount in June and July. Therefore, June and July are NSMs.
Disabled beneficiaries (DIB, DWB, and CDB) are not subject to the ET. Therefore, the months that the beneficiary becomes entitled to disability benefits do not constitute NSMs.
Example of determining NSMs for a beneficiary entitled to DIB then RIB:
A beneficiary becomes entitled to DIB in 2009. He did not work any month after 2008. In 02/11, he attains FRA, his DIB terminates, and he becomes entitled to RIB. The months he did not work in 2009 through 2010 and 01/11 are not NSMs because the beneficiary received DIB payments for those months.
D. Procedure for documenting the initial grace year
Annotate the initial grace year in the Last Monthly Earnings Test Year (LMETY) data field of the master beneficiary record (MBR). For beneficiaries who become entitled to a different type of benefit and there is no break in entitlement, the LMETY transfers from one account to the next account. For additional information on annotating the LMETY data field, see the Beneficiary Claim Data (BCL1) screen at MSOM MCS 014.023.
Example of annotating the initial grace year in the LMETY data field:
A beneficiary’s entitlement begins in 2010 and yearly work deductions apply since his entitlement began. The beneficiary attains FRA in September 2011. However, in March 2011 the beneficiary stops working and NSMs apply beginning March 2011. In this situation, the initial grace year is 2011, which we enter in the LMETY field.
Example of annotating the initial grace year in the LMETY data field when there is no break in entitlement:
A beneficiary receives widow’s benefits and has a LMETY of 2010. In 2011, the beneficiary elects RIB and is still subject to the earnings test. The beneficiary does not receive a new LMETY. The LMETY will remain as 2010 on his or her RIB benefits.
Do not annotate the LMETY field if the only reason to apply the MET is the termination grace year or all months of entitlement are in the month of FRA or later.
For A101 cases, see “Beneficiary Claim Data” located in MSOM MCS 014.023. For MACADE coding, see “Beneficiary Entitlement” located in SM 00842.022
SM 00842.022 Beneficiary Entitlement (BNT)
SM 00505.130 Fixed Benefit Data (Line I)
MSOM MCSEC 001.025 Eligibility Data (DEE1)
RS 02501.080 Calculating Excess Earnings
RS 00615.003 Full Retirement Age