Special Payments After Retirement

Q: I retired in 2015 but will have employment related income in 2016 from work completed before I retired.  Will this lower my 2016 Social Security benefits?

A: This question is about the annual earnings test.

For people younger than full retirement age (FRA), the Social Security annual earnings test, also called the retirement test, concerns how much can be earned from wages or self-employment in a calendar year without reducing benefits during that year.

What happens if earnings from one year are paid in the next? Do the earnings count for the earnings test?

Called a special payment, money received for work done before retirement is not normally included for the earnings test.

Income received after retirement is a special payment if the last action to earn it 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.

For example, say a person retired at the end of 2015 and started receiving Social Security retirement as of January 2016. In January, the person received payment for unused vacation time from the former employer. Since this vacation pay was earned before retirement, it is considered a special payment and not counted towards the 2016 annual earnings limit.

Two occupations often receiving special payments for Social Security retirement test purposes are insurance agents and farmers.

Insurance commissions for policies sold before retirement but received after the year of retirement are usually special payments.

If a farmer fully harvested and stored a crop before or in the month of entitlement to SSA benefits, and then carried it over for sale in the next year, the income will not affect benefits for the year of sale. Keep documentation related to this.

As always, this is general information. Learn more by reading Social Security publication Special Payments After Retirement or contact Social Security to discuss your specific situation.

With other useful information, annual earnings test levels for 2016 are in the Social Security Retirement Planner.

Annual earnings test limits end at full retirement age, which is different for retirement and survivors benefits. The retirement FRA chart is linked above and in the Retirement Planner section. The FRA chart for survivors benefits is here.