42 U.S.C. § 403 — Reduction of insurance benefits

(a) Maximum benefits

If a worker's benefit amount was calculated under specific post-1978 formulas, this rule caps the total monthly benefits paid to that worker's family. Family benefits are capped except in the cases covered later in paragraphs (3) and (6). The cap works in four tiers, based on percentages of the worker's own primary insurance amount, called the PIA:

• The first slice of family benefits can be up to 150% of the PIA.
• The next slice can be up to 272% of the PIA.
• The next slice can be up to 134% of the PIA.
• Anything above that can be up to 175% of the PIA.

If the resulting dollar figure isn't a multiple of 10 cents, round it down.

The dollar amounts that mark where each tier ends change every year. For people who first qualified, or died before qualifying, in 1979, the tier boundaries were $230, $332, and $433. For later years, the Commissioner of Social Security recalculates these boundaries using the same wage-growth formula used to figure PIAs, and rounds them the same way. Each year, by November 1, the Commissioner must publish the coming year's formula in the Federal Register. There's a special rule for counting "the year": if someone was already collecting disability^* benefits during the 12 months right before they died or became eligible for other benefits, that later year doesn't count — instead, use the year they first became eligible for those disability benefits.

This rule also sets a floor under some family benefit totals, so this reduction doesn't cut them too low.

• Floor for children eligible on two workers' records: If a family member could get child's benefits from more than one insured worker (but a different rule says they can't collect both), the total family benefits based on one worker's earnings can't drop below the smaller of: the combined maximum benefits payable across all those workers' records, or an amount that started at 1.75 times a reference PIA (calculated from one-twelfth of a reference year's Social Security taxable wage base) and grows every year with cost-of-living increases. The reference year is usually 1983, but it can be later if the reduction started later for that family. If the reduction later stops and then starts again, the reference year resets.
• Floor for people who were already receiving benefits before 1971: if people were collecting benefits based on one worker's earnings before February 1971, their total after that date can never drop below the highest of: the amount this subsection would otherwise produce, the highest amount this subsection ever produced for them in the past, or (for benefit increases after September 1972) an amount scaled up from their pre-increase benefit by that increase's percentage. When this floor applies, the usual maximum-benefit tiers described above don't apply on top of it.
• Divorced spouses: If someone gets benefits as a divorced spouse^* or surviving divorced spouse, their own benefit is calculated without this reduction rule at all. Everyone else's benefit on that same worker's record is then calculated as though the divorced spouse weren't entitled to anything.
• Competing spouses: If two or more people claim spouse's or surviving spouse's benefits on the same worker's record for the same month, and at least one of them relies on a special "deemed valid marriage" rule, the person^* whose marriage was actually valid gets their benefit calculated without this reduction rule, for that month and every month after. Everyone else on that record is treated as though the validly-married person weren't entitled.

Order matters. This reduction is applied after any deductions elsewhere in this section, and after deductions under section 422(b)(1). One exception: if a person collecting a spouse's or survivor's benefit shares a worker's record with someone who lives in a different household and whose benefit is suspended under subsection (h)(3), this reduction happens before that suspension. Whenever this reduction cuts a family's total benefits, every benefit except the worker's own old-age or disability benefit is cut proportionally.

If a family's benefits are being reduced under this subsection for a given month, and the worker's PIA then goes up starting the next month, the law pretends that first month's total had already gone up by whatever small amount would be needed to make sure later months' totals never fall below that first month's total.

There's a special, tighter cap for a disabled worker's family. Instead of the tiers described above, a disabled worker's family benefits (before the offset in section 424a) are capped at the smaller of: 85% of the worker's average indexed monthly earnings (or 100% of the PIA, if that's bigger), or 150% of the PIA. Most of the rest of this subsection doesn't override this tighter cap, except the divorced-spouse and competing-spouse floors described above, the ordering rule just above, and the carry-forward rule just above.

If someone's benefit is based on two or more workers' PIAs, and some of those PIAs were figured under the old pre-1979 rules while others used the post-1978 rules, the combined family total is reduced using the same method as the child's-benefit floor described above.

There's a grandfather clause. The version of this subsection as it existed in December 1978 (later amended in 1990) still applies to PIAs figured under the old pre-1979 formula — but only for workers who became eligible, or died, before 1979. Anyone who first became eligible, or died, after December 1978 falls under the current rules instead. A rounding instruction from the old law is flipped: where it used to say round up to the next $0.10, now read it as round down.

There's a fix for a specific group: people who were getting benefits in May 1978, where a 1977 law increased at least one family member's June 1978 benefit, and that increase then triggered this reduction rule for the whole family. For them, each family member's benefit (after the reduction) is bumped back up to what it would have been if that 1977 increase had never happened.

Finally, there are rules for when a worker moves from disability benefits to old-age benefits, becomes re-entitled to disability, or dies.

• If the worker's new PIA is figured under one specific recomputation method, the family's new total benefit equals what the family was getting in the worker's last month of disability entitlement, adjusted upward for every general benefit increase that happened since then.
• If the worker's new PIA is figured under a different, related recomputation method, the family's new total simply equals what the family got in that last month of disability entitlement — with no extra increases added.
• If the worker's old disability-based total had been capped under the tighter disability cap described above, the family's new total is recalculated as if that cap had never applied.
• This whole set of rules is applied before the child's-benefit floor described above, and before the pre-1978 version of this subsection.

(b) Deductions on account of work

The Commissioner withholds money from a worker's benefits — and from any family members' benefits based on that worker's record — whenever the worker has "excess earnings" (defined in subsection (f)). The Commissioner keeps withholding, month by month, until the total withheld equals: the worker's own benefit, plus, if the worker is an old-age beneficiary, everyone else's benefits on that record for that month. If the worker's excess earnings are smaller than that combined total, the Commissioner only withholds the amount of the excess earnings — no more. A married child^* over 18, or a person getting mother's or father's benefits, who is married to the old-age beneficiary counts as entitled to the old-age beneficiary's benefits for this rule. If a deduction already happened for a family member in a given month, later deductions and earnings-charging only apply to what that person has left. Two more rules apply here and to the earnings-charging rule in subsection (f): a person's entitlement is measured after the maximum-benefit reduction in subsection (a) — but before applying the very first sentence of subsection (a)'s paragraph on ordering; and if a person's benefit is withheld for a month because of one of the disqualifying events in subsections (c) or (d) or section 422(b)(1), that person isn't treated as entitled to any benefit for that month at all, for purposes of this rule.

A divorced spouse who has been divorced for at least two years is protected from this withholding: their own benefit is figured without regard to the worker's excess earnings, and everyone else on the worker's record is treated as though the divorced spouse weren't entitled. This protection doesn't apply, though, if the worker became entitled to old-age benefits before the divorce happened.

(c) Deductions for working abroad in noncovered work, or not caring for a qualifying child

The Commissioner withholds a person's entire monthly benefit for any month where:

• The person is under retirement age and worked more than 45 hours that month in "noncovered" work outside the United States^* (defined in subsection (k));
• The person is a wife^* or husband^* under retirement age getting a spouse's benefit, but didn't have the qualifying stepchild in their care that month, and their spouse's benefit wasn't already cut under section 402(q);
• The person is a widow or widower getting a mother's or father's benefit, but didn't have their late spouse's child in their care that month; or
• The person is a surviving divorced mother^* or father getting a mother's or father's benefit, but didn't have their late former spouse's child — who must be their own son, daughter, or legally adopted child, and must be entitled to child's benefits — in their care that month.

For these four rules, a child doesn't count as "entitled to benefits" during certain events described elsewhere in the law. No deduction under this subsection is ever taken from a child's benefit for the month the child turns 18, or any month after. And no deduction is taken from a widow's or widower's benefit if that person became entitled before turning 60.

(d) Deductions from a dependent's benefit because the worker did noncovered work abroad

If an old-age beneficiary — who is under retirement age — works more than 45 hours in a month doing noncovered work outside the United States, the Commissioner withholds the full monthly benefit of that worker's wife, husband, or child for that month too. A divorced spouse who's been divorced two or more years is protected the same way as in subsection (b) — their benefit isn't touched by this rule, and others are treated as if they weren't entitled — unless the worker became entitled to old-age benefits before the divorce.

The same kind of withholding applies to a child over 18, or to a person getting mother's or father's benefits, if that person is married to an old-age beneficiary who is under retirement age and worked more than 45 hours that month in noncovered foreign work.

(e) Only one deduction per month

If more than one of the disqualifying events in subsections (c), (d), or section 422(b)(1) happens in the same month, the Commissioner only withholds one month's worth of benefit — not one deduction for each event.

(f) Charging excess earnings to months

When a worker has excess earnings for a tax year (defined below), the Commissioner "charges" that amount against specific months, starting with the earliest eligible month of the year. The Commissioner charges to that first month an amount equal to everyone's combined benefit for that month on the worker's record (not counting protected divorced spouses) — or the full excess earnings, if that's smaller. Anything left over rolls into the next eligible month, and so on, until it's all charged. If the worker gets old-age benefits and family members get spousal or child's benefits on the same record, the worker's own excess earnings get charged first, before charging the family members' own excess earnings. Some months can never be charged at all: months the worker wasn't entitled to any benefit; months the worker was already at or above retirement age; months a child-beneficiary had already turned 18; months of widow's or widower's benefits that started before age 60; the first month of a new benefit entitlement, if the worker's earnings that month were below the exempt amount and this is the very first such month since December 1977; and certain months tied to spousal, child-in-care, or survivor benefits that end for a reason other than death, if the worker's earnings stayed under the exempt amount and no benefits continue into the next month.

The "first month of the taxable year," for this charging rule, means the earliest month in the year that isn't ruled out by the list just above.

"Excess earnings" for a tax year means 33⅓% of the worker's earnings above a yearly threshold, if the worker will reach retirement age by the end of that year, or 50% of earnings above that threshold for everyone else. The threshold is the exempt amount (set below) multiplied by 12. For the year someone actually reaches retirement age, earnings from that month onward don't count at all — self-employment income^* or loss for that year gets split fairly under Commissioner regulations. In the year a worker dies, the full 12 months are always used in this formula. Round the final excess-earnings figure down to the nearest whole dollar.

The Commissioner presumes, unless proven otherwise, that a person was self-employed in any given month — the person must show they did no real work that month for a business whose income counts toward their self-employment^* earnings. The Commissioner writes the rules for what counts as "real work." Likewise, the Commissioner presumes a person earned more than the exempt amount in wages^* for a month, unless the person proves otherwise.

"Earnings" for a tax year means wages for work done that year, plus net self-employment earnings, minus any net self-employment loss. Net self-employment earnings and losses are figured mostly the same way as elsewhere in the Act, with a few adjustments. Wages are counted without certain dollar caps that apply elsewhere; some foreign or military work that wouldn't otherwise count as "employment" is treated as employment here if it isn't already counted as self-employment. "Wages" doesn't include retirement-related payments an employer makes to an employee or their family, whether paid directly or into a fund, or lump-sum or ongoing payments made after a person retires under a qualifying pension plan. Two things are excluded from a person's earnings even if received: royalties from a copyright or patent someone created themselves before reaching retirement age, once they've reached that age; and, for someone already receiving benefits, other income in a later year that isn't tied to work performed after they first became entitled. A company director's fees count as earned at the time the director^* did the work — not when actually paid — unless the payment happened even earlier.

Wages reported to the Commissioner for a calendar year are presumed to have been earned that year, and a person's tax year is presumed to be the calendar year, unless shown otherwise.

If the excess earnings charged to a month are less than the full combined family benefit for that month, the difference gets paid out — split among the worker and family members in proportion to what each would otherwise be owed.

Each year the exempt amount goes up. Whenever Social Security benefits get a cost-of-living increase, the Commissioner publishes, by November 1, new exempt amounts for the next year — one amount for people who've reached retirement age, another for everyone else. Each new exempt amount is whichever is larger: the current year's amount, or the current amount recalculated using national wage growth since a base year (2000 for people at retirement age, 1992 for others), rounded to the nearest or next $10. If Congress passes its own law raising the exempt amount in the same year, the Commissioner's new figure doesn't take effect. The law also lists fixed dollar exempt amounts, for people who've already reached retirement age, covering tax years from 1996 through 2003 — ranging from $1,041.66 per month up to $2,500.00 per month, rising in steps across those years. And starting the month a person actually reaches retirement age, no earnings deduction applies at all, no matter how much they earn.

Wherever this section says "retirement age," it always means the retirement age used for old-age benefits — even for a person who only collects a different type of benefit, like a disability or survivor's benefit.

(g) Penalty for not reporting a disqualifying event

If someone receives and keeps a benefit for the second month after a subsection (c) disqualifying event happened, without having reported it, they lose extra benefits on top of the normal withholding: losing one month's benefit for a first violation, two months' benefit for a second violation, and three months' benefit for a third or later violation — even if the unreported period covered more months than that. But the total extra months taken can never exceed the number of months actually covered by the unreported period.

(h) Reporting earnings to the Commissioner

If a beneficiary's yearly earnings go over 12 times the exempt amount, that person (or whoever manages their benefits) must report those earnings to the Commissioner, by the 15th day of the fourth month after the tax year ends. No report is required for a year that starts once the person has already reached retirement age, or for a year where all under-retirement-age months' benefits were already suspended for low reported earnings — unless the person also collects a spouse's or survivor's-type benefit, that benefit was cut under subsection (a) that year, and another person on the same record who lives elsewhere was also entitled that month. The Commissioner can grant an extension of up to four months for good reason. If all of a year's benefits were suspended for expected excess earnings, no payment for those months will ever be made after three years, three months, and fifteen days pass — unless someone files proof, within that window, that a benefit really was owed.

Failing to file the earnings report on time, when it turns out a work-related deduction was actually owed, triggers extra penalties: losing the last month's benefit of the year for a first failure (or, if the real deduction owed was smaller than that, losing just that smaller deduction amount, but never less than $10); losing twice that month's benefit for a second failure; and three times that month's benefit for a third or later failure. These extra penalties can never exceed the number of months in the year the person actually got a benefit and owed a work deduction. When counting whether a failure is the "first" or a later one, ignore all years before the year the first penalty was applied, except the year right before it.

If the Commissioner reasonably expects a beneficiary will owe a work-earnings deduction, the Commissioner can suspend some or all of that family's benefits in advance, for some or all months, before the year even ends. The Commissioner may ask the beneficiary to estimate their yearly earnings and provide supporting information. Refusing that request is itself enough reason to expect a deduction is owed. After the year ends, if the Commissioner asks for the earnings report or other earnings information and the person doesn't provide it, that refusal is itself enough reason to withhold benefits for that year.

The Commissioner must build procedures to avoid overpaying people because they filed incomplete or inaccurate earnings reports or estimates — including identifying people likely to be overpaid and asking them to update their earnings estimates more often than others.

(i) Repealed

This subsection was repealed by a 1994 law (Pub. L. 103–296, title III, § 309(a), effective August 15, 1994). It no longer has any legal effect.

(j) Attainment of retirement age

A person is treated as having reached retirement age for their entire birthday month — not just the exact day they turn that age.

(k) What counts as "noncovered remunerative activity outside the United States"

This means either: working abroad as an employee in a job that doesn't count as "covered employment" under this law and isn't active U.S. military or naval service; or running a foreign trade or business, other than as an employee, where the income or loss (1) doesn't count toward the person's self-employment earnings, and (2) wouldn't have been excluded from self-employment earnings under section 411(a) even if the same business had been run inside the United States. For the trade-or-business version of this rule, "United States" doesn't include Puerto Rico, the Virgin Islands, Guam, or American Samoa, if the person is a noncitizen who doesn't live in any of those places. "Trade or business" here has the same meaning as in the federal tax code.

(l) Good cause for a late report

Missing a reporting deadline under subsection (g) or (h) isn't punished if the person shows they had good cause for being late. The Commissioner writes the rules for what counts as good cause, but those rules must specifically consider any physical, mental, educational, or language limitation the person has — including not being fluent in English.