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Blog Articles: What are Earnings Limits for Disability Retirees?

How to Avoid Paying Taxes on Social Security
The retirement law has set an earnings limit of 80 percent in order for you to continue your disability retirement.

What are earnings limits for disability retirees? Here are details, based upon age:  If you are 60 or older, there’s no restriction on the amount of income you can earn while receiving disability retirement. If you’re under age 60, you can earn income from work while also receiving disability retirement benefits. However, your disability annuity will cease, if the United States Office of Personnel Management determines that you’re able to earn an income that’s near to what your earnings would be if you’d continued working.

Fed Week’s recent article entitled “The Limits on Earnings for Disability Retirees” says that the retirement law has set an earnings limit of 80% for you to still keep getting your disability retirement. You reach the 80% earnings limit (or are “restored to earning capacity”) if, in any calendar year, your income from wages and self-employment is at least 80% of the current rate of basic pay for the position from which you retired.

All income from wages and self-employment that you actually get plus deferred income that you actually earned in the calendar year is considered “earnings.” Any money received before your retirement isn’t considered “earnings.”

The government says that income from wages includes any salary received while working for someone else (including overtime, vacation pay, etc.). Income from self-employment is any net profit you made from working or managing your own business—whether at home or elsewhere. Net profit is the amount that’s left after deducting business expenses and before the deduction of any personal expenses or exemptions as allowed by the IRS. Deferred income is any income you earned but didn’t receive in the calendar year for which you’re claiming income below the 80% earnings limitation.

If you’re re-employed in federal service, and your salary is reduced by the gross amount of your annuity, the gross amount of your salary before the reduction is considered “earnings” during the calendar year.

The following aren’t considered earnings:

  • Gifts
  • Pensions and annuities
  • Social Security benefits
  • Insurance proceeds
  • Unemployment compensation
  • Rents and royalties not involving or resulting from personal services
  • Interest and dividends not resulting from your own trade or business
  • Money earned prior to retirement
  • Inheritances
  • Capital gains
  • Prizes and awards
  • Fellowships and scholarships; and
  • Net business losses.

If you’re under age 60 and re-employed in a position equivalent to the position you held at retirement, the Office of Personnel Management will find you recovered from your disability.  The net result is that you will lose your annuity payments. A financial planner that deals with employment may be able to provide some good advice for your particular situation.  Estate planning attorneys like Beck & Lenox deal a lot with disabled clients and how to plan for their estates.

Reference: Fed Week (Nov. 4, 2021) “The Limits on Earnings for Disability Retirees”

 

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