Persons who begin receiving social security benefits and who continue to work may lose a portion of their benefits if they earn more than a specified amount of income. This limitation (called the “annual earning test”) only applies to persons between 62 and 70 years of age. For year 2000, persons age 65 to 70 can earn up to $17,000 without any reduction in their social security benefits. However, for every $3 of earned income over this amount a worker’s social security benefits are reduced by $1. For workers who elect to begin receiving social security benefits at ages 62 to 65 the penalty is worse. For every dollar of earned income over $10,060 their social security benefits are reduced by $1. Workers can earn any amount beginning at age 70 without a reduction in social security benefits. These rules have impacted a number of ministers and lay employees who want to work for a church without affecting the amount of their social security benefits.
There is good news. By a unanimous vote of 422-0, the House of Representatives has voted to repeal the annual earnings test for workers who are 65 to 70 years of age. The Senate has promised quick action on the initiative, and President Clinton has promised to sign the bill into law. The legislation only repeals the annual earnings test that applies to persons age 65 to 70. The annual earnings test for persons who elect to begin receiving social security benefits at ages 62 to 65 remains in effect.
Example. Pastor T is a retired minister who is hired by a church as its minister of visitation. Pastor T is 66 years old, and is receiving social security benefits. The church pays him $26,000 of taxable compensation for year 2000. Under current law, Pastor T’s social security benefits would be reduced by $1 for every $3 of earned income over $17,000. Since Pastor T has earned income of $9,000 in excess of $17,000, his social security benefits would be reduced by $3,000.
Example. Same facts as the previous example, except that Congress repeals the annual earnings test. Pastor T’s social security benefits are not affected. His benefits are not reduced by $3,000.
Example. Same facts, except that Pastor T is 63 years old. There are no plans to repeal the annual earnings test for workers who are age 62 to 65. Therefore, Pastor T’s social security benefits will be reduced by $1 for every $2 of earned income over $10,060. Since Pastor T has earned income of $15,940 in excess of $10,060, his social security benefits would be reduced by a whopping $7,970.
