[Federal Register Volume 62, Number 63 (Wednesday, April 2, 1997)]
[Rules and Regulations]
[Pages 15607-15610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8271]


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SOCIAL SECURITY ADMINISTRATION

20 CFR Part 404

[Regulations No. 4]
RIN 0960-AE44


Federal Old-Age, Survivors and Disability Insurance; Report of 
Earnings Under the Social Security Earnings Test

AGENCY: Social Security Administration.

ACTION: Final rule.

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SUMMARY: This final rule amends our regulations regarding reports of 
earnings to the Social Security Administration (SSA) required of 
beneficiaries who work and earn more than the applicable exempt amount. 
Beneficiaries under age 70, who work and earn more than the applicable 
exempt amount, are required by law to report their earnings to SSA 
within three months and 15 days following the close of their tax year 
(usually April 15). As a result of our ongoing efforts both to improve 
customer service and to reduce the public's paperwork burden, we are 
changing our regulations to state that we can accept the W-2 report 
filed by the employer with SSA, and/or the self-employment income tax 
return filed by the beneficiary with the Internal Revenue Service 
(IRS), as the report of earnings. We will use the information (wages 
and net earnings from self-employment) contained in those reports 
together with other pertinent information to adjust benefits under the 
earnings test.

DATES: This final rule is effective April 2, 1997.


[[Page 15608]]


FOR FURTHER INFORMATION CONTACT: Robert Augustine, Division of 
Regulations and Rulings, Social Security Administration, 6401 Security 
Blvd., Baltimore, MD 21235, (410) 966-5121. For information on 
eligibility, claiming benefits, or coverage of earnings, call our 
national toll-free number, 1-800-772-1213.

SUPPLEMENTARY INFORMATION: Under the Social Security earnings test set 
out in section 203 of the Social Security Act (the Act), benefits are 
reduced if the annual earnings of a beneficiary (receiving other than 
disability benefits), under age 70, exceed certain exempt amounts. The 
exempt amounts are established by law. Individuals who are entitled to 
a monthly benefit (other than a disability benefit) during the year and 
who earn over the exempt amount are required to file a report of 
earnings with the SSA within three months and 15 days following the 
close of their tax year (usually April 15). The reports may be filed on 
a form prescribed by SSA, or in person, or by telephone. The report may 
be filed by someone other than the beneficiary, provided the report 
contains the required information. Failure to file a report as required 
will result in a monetary penalty, unless we find that there was good 
cause for filing late. There are 330,833 public reporting burden hours 
associated with the completion and filing of these annual earnings 
reports.
    Working beneficiaries are also required to report their income to 
the IRS during the same time period. SSA receives and processes W-2 
information from employers. We also receive limited information from 
IRS from individual self-employment income tax returns that are filed. 
Wages and net-earnings from self-employment are ``posted'' to 
individual earnings records as part of our mission to maintain accurate 
earnings records for benefit payment. Until recently, we have been 
unable to use the earnings information we receive from W-2 forms and 
self-employment tax returns as the annual report because it took 
several years for SSA to receive and process the earnings information 
from the W-2 forms and the tax returns. For that reason, we provided in 
Sec. 404.452(b) of our regulations that the filing of tax returns with 
the IRS was not such a report as is required to be filed for the annual 
earnings test, even where the tax returns showed the same wages and net 
earnings from self-employment that must be reported to us for purposes 
of the annual earnings test. Although SSA was unable to use earnings 
information from W-2 forms and self-employment tax returns to adjust 
benefits on a timely basis, we have traditionally used this information 
as a check to ensure beneficiary compliance with the reporting 
requirements of the annual earnings test.
    Recent improvements in employer reporting practices and in SSA's 
Annual Wage Reporting (AWR) process have made it feasible and desirable 
for SSA to change its process for obtaining earnings information from 
working beneficiaries. For the majority of beneficiaries, information 
from the W-2 report and/or the self-employment tax return is now 
processed quickly enough that it is sufficient to serve as the ``annual 
report'' without need for further action by the beneficiary. Therefore, 
as part of the ``reinventing government'' initiative and in order to 
reduce the reporting burden on the public, improve customer service and 
save administrative costs, we are revising Sec. 404.452 to state that 
the form W-2 filed by the employer with SSA and/or the self-employment 
income tax return filed by beneficiaries with IRS may serve as the 
annual report of earnings. Because of this change, SSA will no longer 
print and mail Annual Report of Earnings forms. For most beneficiaries, 
the process will be totally automated, with SSA receiving and 
processing earnings information reported for tax purposes and using 
that information in conjunction with other relevant information to 
adjust the Social Security benefits payable accordingly.
    Certain situations will require more information than is contained 
on the form W-2 and self-employment income tax return. When these 
situations occur, a beneficiary will still have to contact SSA to 
provide the information in order to ensure the correct amount of 
benefits are paid, unless the information was otherwise provided to us. 
In addition, some beneficiaries may wish to file a report directly with 
SSA, in order to have their benefits adjusted sooner. (Most adjustments 
now occur during the period February through May, based on reports 
filed directly with us, but would take place June through October if 
based on reports filed through IRS). In these instances, we will accept 
a report of earnings in writing, in person, or over the telephone, from 
beneficiaries who still need or wish to file a report.
    For example, under IRS regulations, wages are reported on forms W-2 
for the year in which they are paid. Under the Social Security earnings 
test, wages are counted for the year in which services are performed. 
Therefore, if the form W-2 shows wages that were earned in a year or 
years prior to the year for which the report is made, e.g., deferred 
compensation, the beneficiary will need to report to us the correct 
amount of earnings for the year reported.
    There is a similar provision for the self-employed (applicable to 
years after the initial year of entitlement) that may require contact 
when no services have been performed in the year for which net earnings 
from self-employment are reported. Furthermore, in the year in which 
the monthly earnings test applies (frequently the year of retirement), 
a beneficiary who has not already done so will need to provide monthly 
earnings information to SSA that cannot be discerned from the form W-2 
or the self-employment income tax return.
    Additional examples of situations where other pertinent information 
must be provided are:
     The beneficiary earned wages above the exempt amount and 
also had a net loss from self-employment;
     There were wages reported on a W-2 that will be included 
on a self-employment tax return (e.g., ministers and certain church 
workers);
     The beneficiary is self-employed and reports earnings on a 
fiscal year basis which is not the calendar year;
     The beneficiary had Federal agricultural program payments 
or income from carry-over crops that is included on the SE return;
     The beneficiary estimated earnings over the exempt amount 
and some benefits were withheld, but there were no earnings for the 
year, i.e., no wages reported, no self-employment.
    SSA already has methods of collecting some of the supplemental 
information needed to correctly adjust benefits under the earnings test 
when that information is needed. Much of the information can be 
gathered in the initial claims process. We also work with employers and 
payroll groups to have them report directly to us certain payments that 
should not be counted under the earnings test. We will continue to use 
these methods as well as develop other means to obtain supplemental 
information needed to correctly adjust benefits without a separate 
report of earnings from the beneficiary. We will provide an explanation 
of the process during the claims interview, and we will provide written 
information through our public information materials that will allow 
beneficiaries to understand what earnings should be counted under the 
earnings test and the situations in which we would need additional 
information. When we adjust benefits based on the earnings posted to 
the beneficiary's record, we will, in our notice to the beneficiary, 
provide full information regarding the earnings that we used and the 
situations in which those earnings

[[Page 15609]]

may not be correct. This will ensure that beneficiaries have full 
knowledge of our actions. Our notice will also tell beneficiaries how 
to obtain a reconsideration of our determination if they feel we were 
wrong, and will advise them of their responsibility to give us any 
further information that could be pertinent to their benefit 
adjustment.
    It should be noted that we are not revising our regulations 
regarding extension of time for filing a report (Sec. 404.452(f)). The 
deadline for filing employer reports (W-2 forms) is well within the 
timeframes for required annual reports. In relying on these, as well as 
the SE tax return information, SSA will assume that posted earnings are 
based on timely filed reports. However, when a beneficiary requests an 
extension of time from IRS for filing a self-employment tax return, the 
beneficiary must either file a timely report of earnings with SSA, or 
request an extension of time for filing such a report from SSA. An 
extension granted by IRS will not be considered an extension of time 
granted by SSA.
    This change in our rules will result in improved service to our 
beneficiaries. First, this final rule will reduce the burden associated 
with the double filing of information with both SSA and IRS. Second, 
SSA will be able to shift resources devoted to the solicitation and 
processing of reports from beneficiaries under the current annual 
report process to other priority workloads, such as processing claims 
for benefits and responding to telephone inquiries. Finally, this rule 
supports the President's request in his remarks on May 22, 1995 on 
signing the Paperwork Reduction Act of 1995, that agencies review their 
regulations with the goal of reducing by half the frequency of reports 
required from citizens. This final rule will eliminate the annual 
report of earnings form and the need for most working beneficiaries to 
file a separate report of earnings with SSA, resulting in a savings of 
up to 330,833 public burden hours each year.
    We are also revising paragraphs (a)(1) and (a)(2) of Sec. 404.452 
by changing age 72 to age 70. These revisions reflect the statutory 
change in the Social Security Amendments of 1977 that reduced from age 
72 to 70, the age at which beneficiaries become exempt from the annual 
earnings test. This change was originally scheduled to take effect in 
1982 but, due to a provision in the Omnibus Budget Reconciliation Act 
of 1981, it did not become effective until 1983. Since the statutory 
provisions were self-implementing, we exempted working beneficiaries 
age 70 and over from the annual earnings test beginning in 1983. 
However, we have not previously updated this regulation to take account 
of this statutory change.
    This regulation was published in the Federal Register (62 FR 349) 
as a notice of proposed rulemaking (NPRM) on January 3, 1997. 
Interested parties were given 30 days to submit comments. No public 
comments were received. We are, therefore, publishing this final rule 
with no changes from the proposed rule.

Regulatory Procedures

    Pursuant to section 702(a)(5) of the Act, 42 U.S.C. 902(a)(5), as 
amended by section 102 of Public Law 103-296, SSA follows the 
Administrative Procedure Act (APA) rulemaking procedures specified in 5 
U.S.C. 553 in the development of its regulations. The APA provides in 5 
U.S.C. 553(d)(1) for an exception to the requirement for a 30-day delay 
in the effective date of a substantive rule if the rule grants or 
recognizes an exemption or relieves a restriction. As indicated above, 
this final rule will eliminate the annual report of earnings form and 
exempt most working beneficiaries from the requirement to file a 
separate report of earnings with SSA. This will result in a savings of 
up to 330,833 public reporting burden hours each year and, by allowing 
us to divert scarce resources to other priority workloads, enable us to 
provide better overall service to the public. In light of these 
considerations, we find that it is in the public interest to make this 
rule effective upon publication.

Executive Order 12866

    The Office of Management and Budget (OMB) has reviewed this rule 
and determined that it meets the criteria for a significant regulatory 
action within the meaning of Executive Order 12866. As indicated 
earlier in this preamble, failure to file a timely report of earnings 
will result in a monetary penalty, unless we find that there was good 
cause for filing late. Since, for most beneficiaries, the W-2 and/or 
self-employment tax return information will be considered the annual 
report of earnings required by section 203(f) of the Act, we anticipate 
that there will be very few penalties imposed on beneficiaries for 
failing to report their earnings. The loss of penalty dollars is 
estimated to be $60-75 million for the 5-year period of fiscal years 
1997 through 2001. However, we believe that the loss of penalty income 
should not be given undue consideration because this income results 
from beneficiaries' failure to timely report their earnings to SSA. It 
has always been the goal of SSA to achieve maximum reporting compliance 
and if this goal was achieved, there would be no penalties imposed. 
Furthermore, we believe that the loss of penalty revenue is more than 
offset by the benefits that both the public and SSA will realize under 
this rule. These benefits include the fact that up to 1.3 million 
beneficiaries will no longer be required to complete the annual report 
of earnings forms resulting in a reduction in the public reporting 
burden of up to 330,833 hours. In addition, this initiative will shift 
the annual report workload from SSA's peak workload period (January 
through March) until later in the year and thus, will allow SSA to 
divert scarce resources to other priority workloads, such as processing 
claims for benefits and responding to telephone inquiries, resulting in 
better overall service to the public.
    Administrative savings for this initiative are estimated to be 540 
workyears and $23.2 million for fiscal years 1997 through 2001.

Regulatory Flexibility Act

    We certify that this final rule will not have a significant 
economic impact on a substantial number of small entities since it 
affects only individuals. Therefore, a regulatory flexibility analysis 
as provided in Public Law 96-354, the Regulatory Flexibility Act, is 
not required.

Paperwork Reduction Act

    This final regulation will impose no new reporting or recordkeeping 
requirements requiring OMB clearance. As indicated in the NPRM, we 
estimate that this new Annual Report of Earnings process will reduce 
the annual public reporting burden by up to 330,833 hours. This is the 
annual reporting burden associated with the completion and filing of 
forms SSA-777 and SSA-7770 (OMB Control Number 0960-0057). Although 
this final regulation will eliminate those forms, SSA will continue to 
collect earnings information, through a number of other collection 
instruments already approved by OMB. In most cases, we will obtain this 
information through forms W-2 and schedule SEs approved for use by IRS. 
In those cases where additional information is required, we expect to 
obtain that information during the initial claims interview through 
forms approved for use by SSA (primarily the SSA-1 (Application for 
Retirement Benefits; OMB Approval Number 0960-0007) and the SSA-795 
(Statement of Claimant or Other Person; OMB Approval Number 0960-
0045)). In addition, OMB has approved a new

[[Page 15610]]

form, SSA-131, OMB Number 0960-0566, to collect the additional 
information needed to correctly adjust benefits in special wage payment 
situations.

(Catalog of Federal Domestic Assistance Program Nos. 96.001 Social 
Security--Disability Insurance; 96.002 Social Security--Retirement 
Insurance; 96.004 Social Security--Survivors Insurance)

List of Subjects in 20 CFR Part 404

    Administrative practice and procedure, Blind, Disability benefits, 
Old-Age, Survivors and Disability Insurance, Reporting and 
recordkeeping requirements, Social security.

    Dated: March 10, 1997.
John J. Callahan,
Acting Commissioner of Social Security.

    For the reasons set out in the preamble, part 404 of chapter III of 
title 20 of the Code of Federal Regulations is amended as follows:

PART 404--FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE

    1. The authority citation for subpart E of part 404 continues to 
read as follows:

    Authority: Secs. 202, 203, 204 (a) and (e), 205 (a) and (c), 
222(b), 223(e), 224, 225, and 702(a)(5) of the Social Security Act 
(42 U.S.C. 402, 403, 404 (a) and (e), 405 (a) and (c), 422(b), 
423(e), 424a, 425, and 902(a)(5)).

    2. Section 404.452 is amended by revising paragraphs (a)(1) and 
(a)(2), revising the last sentence of paragraph (b), and revising 
paragraph (d) to read as follows:


Sec. 404.452  Reports to Social Security Administration of earnings; 
wages; net earnings from self-employment.

    (a) * * *
    (1) The individual attained the age of 70 in or before the first 
month of entitlement to benefits in the taxable year, or
    (2) The individual's benefit payments were suspended under the 
provisions described in Sec. 404.456 for all months in a taxable year 
in which the individual was entitled to benefits and was under age 70.
    (b) * * * The filing of an income tax return or a form W-2 with the 
Internal Revenue Service may serve as the report required to be filed 
under the provisions of this section where the income tax return or 
form W-2 shows the same wages and net earnings from self-employment 
that must be reported to the Administration under this section.
* * * * *
    (d) Information to be provided to us. The report should show the 
name and social security claim number of the beneficiary about whom the 
report is made; identify the taxable year for which the report is made; 
show the total amount of wages for which the beneficiary rendered 
services during the taxable year (if applicable), the amount of net 
earnings from self-employment for such year (if applicable); and show 
the name and address of the individual making the report. To overcome 
the presumption that the beneficiary rendered services for wages 
exceeding the allowable amount and rendered substantial services in 
self-employment in each month (see Sec. 404.435), we must also be told 
the specific months in which the beneficiary did not render services in 
employment for wages of more than the allowable amount (as described in 
Sec. 404.435) and did not render substantial services in self-
employment (as described in Secs. 404.446 and 404.447).
* * * * *
[FR Doc. 97-8271 Filed 4-1-97; 8:45 am]
BILLING CODE 4190-29-P