Ask Larry: Do My Severance Pay, PTO & Vacation Pay Count As Earned Income For Social Security?

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Today’s column addresses questions about whether — and when — severance and paid time off count as wages under Social Security’s earnings test, some potential effects of filing early and some requirements for divorced spousal benefits to be paid. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.


Do My Severance Pay, PTO & Vacation Pay Count As Earned Income For Social Security?

Hi Larry, I started receiving my Social Security widow’s benefits January 2019. I just received a letter stating that they cannot pay my benefits from January 2019 through April 2019 because I was working. I was not working. I was on temporary disability collecting New Jersey short term disability and disability through the company that I worked for. I was given severance compensation, paid PTO and vacation pay. Can these payments show as earned income?

When I applied to Social Security, I asked if can I receive temporary disability and widow’s benefits and was told yes and now they are looking for me to return $10k. Thanks, Amy

Hi Amy, Yes. Any compensation you received for which you received a W-2 form would likely be considered to be earned income for purposes of the Social Security earnings test, but if you last worked in 2018 then anything you were paid in 2019 could likely be excluded from counting toward the 2019 earnings test. Social Security refers to that type of compensation as a special wage payment (SWP), and they use a specific form (SSA-131) to document that type of payment.

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Based on your description, it sounds like you can probably get Social Security to remove the overpayment that you’ve been notified of by having your former employer complete a form SSA-131 and submitting in to Social Security. It might work best to start out by calling Social Security to explain the circumstances, though. Best, Larry



Will My Wife Receive More If She Files For Spousal Benefits?

Hi Larry, My wife and I both will retire in 2022. I will be 62 and she will be 63. Social Security shows her at $750 a month and me at $1,950 a month at that time. Would she receive more if she filed for spousal benefits? Thanks, Tomás

Hi Tomás, Your wife can’t file for spousal benefits without being required to file for her own benefits at the same time. If you’re drawing your retirement benefits and if your primary insurance amount (PIA), which is equal to your full retirement age (FRA) retirement benefit amount, is more than twice as much as your wife’s PIA, she would then be paid her own benefit plus a partial, or excess, spousal benefit. If she starts drawing prior to full retirement age (FRA), each benefit rate would then be reduced for age.

You and your wife may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to analyze your options before deciding when to claim your benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry


Does My Ex’s Benefit Rate Need To Be More Than Twice As Much As Mine For Me To Get Divorced Spousal Benefits?

Hi Larry, I was married from 1965 until 1982. I am 72 and my ex is 79. I have our divorce decree and his birthdate but not his Social Security number. How can I find out if I can I apply for divorced spousal benefits? I get $1,401 before they take out for Medical insurance. Does his benefit need to be twice that or even more for me to get benefits based on his record? Thanks, Holly

Hi Holly, Basically, yes. Assuming that your ex is living, 50% of his primary insurance amount (PIA) would need to be more than your full PIA in order for you to potentially qualify for divorced spousal benefits. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing at full retirement age (FRA). However, if your ex dies before you, you could potentially be eligible for the higher of your benefit rate or your ex’s full benefit rate.

Social Security can’t tell you how much your ex is getting, but they should be able to tell you whether or not you could be eligible for divorced spousal benefits. Or you could simply file for divorced spousal benefits in order to get a formal determination. If you don’t know your ex’s Social Security number, you should still be able to file a claim if you furnish sufficient evidence of your identity and relationship. Best, Larry


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