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Please see the description below with respect to members receiving a letter from Social Security terminating benefits and telling Social Security beneficiaries they owe money to Social Security for having wages that exceeded the earnings test the year the bonus was paid.
Background:
- A TWU Member signed up for the VEOP in 2020.
- A feature of the VEOP was a bonus of 50% of base pay to be paid on or before August 2021 the following year.
- The 50% of base pay bonus was connected to accepting the VEOP, thus it is severance pay.
- Social Security classifies this bonus as a “SPECIAL PAYMENT”. Special payments is defined by Social Security as a payment to an employee after retirement.
- The bonus was paid after separating from AA.
- What qualifies as a Special Payment according to Social Security? Specifically, income received AFTER retirement counts as a special payment and includes payments such as:
- Severance pay (the 50% of base pay bonus),
- Accumulated vacation, and
- Accumulated sick pay, etc.
- Thus, a special bonus will NOT affect Social Security benefits BECAUSE IT IS CLASSIFIED AS A SPECIAL PAYEMENT by Social Security.
- Example: Mr. Smith retired under the VEOP in October 2020. His separation agreement provided for a bonus of 50% of base wages to be paid the following year. Mr. Smith received a check from his employer for $50,000. Because this is for severance pay earned before he retired, Social Security will treat it as a special payment AND won’t count it toward the earnings limit in 2021.
PROBLEM:
- When you receive Social Security benefits and your total yearly earnings exceed $18,960 (2021), Social Security benefits are reduced and can be eliminated that year if wages exceed the maximum earned income limit.
- The $50,000 bonus paid in 2021 has been reported as wages and not severance pay.
- Many of the retirees started Social Security benefits in the same year as the bonus was paid. When reported on the W-2, the bonus was reported as wages and not noted as severance pay.
- TWU members, AA retirees, are receiving notices from Social Security terminating Social Security benefits and telling the Social Security beneficiary they owe Social money for the excess Social Security benefit amounts above earned income limit.
SOLUTION:
- A form SSA-131 must be completed by the employer and provided to the employee to correct the classification of the bonus reported as earned wages to being reported as severance pay.
- By doing so, Social Security benefits will be restarted and the penalty of repayment of excess benefits to Social Security will be eliminated and resolved.
ATTACHMENTS:
Social Security brochure called Special Payments after Retirement
Form SSA -131
Sincerely,
Mark Loeber
TWI Local 514 Retirement Counsellor
Download:
Special Payments after Retirement Social Security.pdf
ssa-131.pdf
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