Social Security Benefits and Special Payments After Retirement
Bonuses, Vacation Pay, Commissions, Sick Pay, Insurance Commissions, Carryover Crops and Other Special Payments
What are “special payments”?
After you retire, you may receive payments for work you did before you started getting Social Security benefits. Usually, those payments will not affect your Social Security benefit if they are for work done before you retired.
What qualifies as a special payment?
If you worked for wages, income received after retirement counts as a special payment. This applies if the last task you did to earn the payment was completed before you stopped working. Some special payments to employees include bonuses, accumulated vacation or sick pay, severance pay, back pay, standby pay, sales commissions, and retirement payments. Another example of a special payment is deferred compensation reported on a W-2 form for one year but earned in a previous year. These amounts may be on your W-2 in the box labeled “Nonqualified Plan.”
If you were self-employed, any net income you receive after the first year you retire counts as a special payment. This applies if you performed the services before your entitlement to Social Security benefits. “Services” are any regular work or other significant activity you do for your business.
Some special payments to self-employed people include:
- Farm agricultural program payments.
- Income from carryover crops.
- Income gained by an owner of a business who does not perform significant services in that business.
How do earnings limits affect benefits?
If a person who gets Social Security retirement benefits is younger than their full retirement age, there are limits to how much they can earn from work before it affects their benefits. Your full retirement age varies based on the year you were born. You can visit Benefits Planner: Retirement | Retirement Age Calculator | SSA to find your full retirement age. Benefits are reduced, if earnings exceed certain limits:
- If you are younger than your full retirement age, a deduction of $1 in benefits for each $2 earned above the earnings limit. In 2022, the limit is $19,560.
- In the year you reach your full retirement age, a deduction of $1 in benefits for every $3 you earn above the earnings limit. In 2022, the limit is $51,960.
- Starting with the month you reach full retirement age you can get your full benefits no matter how much money you earn.
If you get Social Security and your total yearly earnings exceed the limit, and these earnings include a special payment, contact your tax advisor or the Social Security Administration for clarification. If it qualifies, the income will not count as part of total earnings for the year.
Example of a special payment.
Mr. DeSilva retired at age 62 in November 2021 and began to receive Social Security benefits. In January 2022, Mr. DeSilva receives a check from his employer for $20,000 for his leftover vacation time. Because this was for vacation pay, he earned before he retired, it is a special payment and won’t count towards the earnings limit for 2022.
Insurance salespeople and farmers. There are two specific occupational groups that commonly receive earnings which qualify as special payments; insurance salespeople who receive renewal or repeat commissions and farmers who receive income from carryover crops.
Many insurance salespeople continue to receive commissions after the year they retire for policies they sold before retirement. This income does not affect their Social Security benefits, as long as the income was the result of work done before they retired. Many farmers harvest and store crops one year for sale in another year. Farmers may fully harvest and store crops before or in the month they become entitled to benefits, and then sell them in the next year. Those earnings will not affect benefits for the year they receive the money.
As always, with regards to Social Security questions you should contact the Social Security Administration at The United States Social Security Administration (ssa.gov) and for tax related questions, consult with your tax advisor.
Sourced from the Social Security Administration – January 2022.