As this newsletter was going to press, President Clinton signed into law a bill that repeals the “annual earnings test” for workers who are 65 to 70 years of age. The repeal is retroactive to January 1, 2000. As a result of this repeal, persons who are 65 to 70 years of age, and who continue to work, will not have their social security benefits reduced by earning income over a specified amount. Prior to the repeal, workers who were between 65 and 70 years of age, and who were receiving social security benefits, could earn up to $17,000 (for year 2000) without any reduction in their social security benefits. However, for every $3 of earned income over this amount, a worker’s social security benefits were reduced by $1.
The annual earnings test for workers who elect to begin receiving social security benefits at ages 62 to 65 is not affected. For every $2 of earned income over $10,060 their social security benefits are reduced by $1 (in year 2000). Workers can earn any amount beginning at age 70 without a reduction in social security benefits.
• 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. If Congress had not repealed the annual earnings test, Pastor T’s social security benefits would have been reduced by $1 for every $3 of earned income over $17,000.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 have been reduced by $3,000. However, because the annual earnings test has been repealed, Pastor T’s social security benefits are not affected. His benefits are not reduced by $3,000. The repeal of the earnings test means that Pastor T will have an additional $3,000 of income in 2000.
• 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.
© Copyright 2000 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m68 c0300
