Tuesday, March 27, 2007

Must Social Security beneficiaries file estimate of annual earnings in advance?

When someone retires before reaching full retirement age, but at age 62 or later, and has to comply with the Social Security Annual Earnings Test, the question comes up whether the individual must report his estimated or expected earnings for the coming year.

Social Security normally gets last year’s earnings from an beneficiary’s Federal income tax return, and will update its Master File (presumably mainframe and not publicly accessible) computer record for the beneficiary sometime shortly after April 15 of any year. If one has exceeded the Earning’s Limit, Social Security will usually demand an overpayment refund. (There can be some exceptions.) Most of the time the earnings are determined from the “wages, tips” etc. line on the Form 1040, but the recipient is responsible for counting other special items that might fall under the test (such as royalties, sometimes). Self-employment can result in special considerations (if it generates more than $400 in income), as can some income reported as “Other”. Generally, as covered before, pensions, IRA distributions, and similar sources (interest, capital gains) do not count (their wages were counted when the earnings were deferred) and usually this is pretty clear from the individual items on the 1040. A few of the rules for special situations may be complicated or obscure and might require attention from an attorney or financial planner.

If someone is receiving benefits before full retirement age and suddenly takes a job that will markedly increase his or her earnings, he does need to call or contact Social Security, which may postpone or adjust benefits. What is if there is no change or only modest earnings, well under the AEL?

SSA lays out the rules at this link: "How Work Affects Your Benefits.” This file at one point reads: “We adjust the amount of your Social Security benefits in 2007 based on what you told us you would earn this year.” It doesn’t seem to say earlier in this document that the individual would have filed an estimate unless his or her earnings increased, or this is the first year (often the “grace year” where the Annual Earnings Test applies monthly). It would seem, to me anyway, that this probably means you must report to them if your earnings increase substantially and are likely to exceed the limit.

Tomkiel’s book, (review here) where he discusses the situation on p 208, would seem to bear this conclusion out. He says that SSA gets the information from your “W-2” or “self-employment tax return,” effectively any records that SSA gets from the IRS (your return). On p 210 he states that the deadline for filing a report if your IRS information is somehow incomplete or misleading is April 15, the same day you must file your income taxes. Otherwise, it appears that SSA will get the information from the IRS. There are penalties for failing to report income increases if they would result in overpayment of benefits.

Of course, any beneficiary with a complicated situation should consult with an attorney, tax advisor or financial planner. I am simply reporting here the best information that I can find.

The SSA POMS reference appears to be this file.

Monday, March 05, 2007

Columnist attacks social security "golden disability"

The DC Examiner, Monday March 5, 2007, p. 15, has an op-ed column from columnist Melanie Scarborough, "Social Security provides tax-paid golden disability for job slackers," at this link. At one point, she writes, "The SSA's guidebook, which might as well be (en)titled "You, Too, Can Be Disabled" walks applicants through the steps to collect their jackpots."

Of course, this is going to create a stir. When I was a "baby buddy" for People with AIDS in Dallas in the 1980s, getting social security disability was a frequent topic in the information forums. And disability, for example partial blindness because of overexposure to incubators (a not uncommon problem for some people born in the 1950s) is quite real.

The problem, as conservative have pointed out, is making Social Security be both a welfare program and an annuity program. (SSA just administers the SSI payments; these are funded separately; Disability, on the other hand, is part of the regular SSA program.) This observation shows up in controversies over annual earnings limits up to full retirement age, and to possible future discussions about means testing.

Thursday, March 01, 2007

Gray Lists provide home health care for elderly

Jane Gross has a story in The New York Times, March 1, 2007, "New Options (and Risks) in Home Care for Elderly" on p A1. She has written about critical problems in eldercare before, as in a Dec 30 2006 blog entry of mine at this link.

She indicates that in-home care from an agency that is fully bonded can cost as much as $150000 a year for two parents in New York City. So many people have been going to a "gray market", informally run, of relatively unscreened women.

Many "gray market" providers are run by small companies or especially by churches, with good intention. Indeed, they seem to fit into the president's idea of privatized "faith based" social services. In many cases, a live-in home health aide can be provided during a long period of recuperation from surgery, or for indefinite custodial care. Often such care is arranged by adult children living and working in other cities, and sometimes these adult children may be single and have relatively little personal experience with family socialization. Home health providers have had to become stricter about immigration status and green cards, in the post 9/11 world, because of legal and political pressures related to security and illegal immigration. It would seem plausible that an adult child could get into trouble for hiring an illegal worker to provide care for parents.

With increasing life-spans and the ability to provide life-extending medical care, questions could come up about the responsibilities of adult children, especially those without families of their own. I have an extended discussion of filial responsibility here.