When you are younger than full retirement age (FRA), the Social Security annual earnings test involves how much you can earn from wages or self-employment in a calendar year without reducing benefits.
What if you are paid in 2013 for work completed before retiring in 2012? Does this income count towards earnings test limits? Will your 2013 Social Security retirement benefits be reduced due to this 2012 work?
Termed a “special payment”, money received in 2013 for work done before your 2012 retirement will not normally affect your SSA retirement. Employee income received after retirement is a special payment if the last thing done to earn the payment was completed before stopping work. Examples could include accumulated vacation or sick pay, bonuses and sales commissions. If self-employed, net income received after the first year you retire is a special payment if you performed the services to earn the payment before becoming entitled to receive Social Security.
Two local occupations often receiving special payment earnings for SSA retirement purposes are insurance salespeople and farmers. Commissions for insurance policies sold before retirement but received after the year of retirement are usually considered special payments. If a farmer fully harvested and stored a crop before or in the month of entitlement to Social Security benefits, and then carried it over for sale in the next year, the income will not affect benefits for the year of sale.
As always, this is general information. If applicable to you, discuss special payments when filing for retirement. Read Social Security publication 05-10063, “Special Payments After Retirement”, at www.socialsecurity.gov/pubs/10063.html or available from any SSA office. Annual earnings test information is at www.socialsecurity.gov/retire2/whileworking.htm.