The Apple Giveth And the Orange Taketh Away

Q: I am 64 and receive Social Security retirement benefits, although I am still working part time. Last year, I got a letter from Social Security telling me that because of my extra earnings, they increased my monthly benefit — plus, I received a retroactive check that paid me the extra amount back to the beginning of the year. But just last month, I got a letter from Social Security telling me they want all that money back. The letter said that because of my extra earnings, I have been overpaid more than a thousand dollars.

I don’t get this! I have no intention of paying the money back because it was their fault for giving it to me in the first place. Can you help me understand?

A: I find myself spending a lot of time in this column talking about apples and oranges, and the messy fruit salad they can sometimes make. And that’s what’s going on in your case. You were paid the extra money last year because of one law that we’ll call the apple. And you’ve been asked to repay some funds because of another law that we’ll call the orange. I’ll explain.

First, we will discuss the apple. Let’s start with this premise: Your retirement benefit is essentially a percentage of your average monthly wage based on your highest 35 years of earnings. When you initially applied for Social Security, your benefit calculation was obviously based on the earnings that were posted to your Social Security account at the time. But you indicated that you are still working. That means you are adding new earnings to your Social Security record. And if those extra earnings raise your average monthly wage, they also increase your Social Security benefit.

The Social Security Administration has a computer program that tracks people’s earnings and automatically refigures their Social Security benefits to find out if any increase is due. This generally happens between May and October of each year. People who are due an increase get a letter (as you did last year), which informs of an increase in the monthly benefit and also of the retroactive payment due — because the increase is effective with January of each year. In other words, the increase you got last year (probably about June 2010) was based on your 2009 earnings that had been added to your Social Security record, and your increase was retroactive to January 2010.

SSA calls the computer program, which performs that annual recalculation of benefits, the “automatic earnings reappraisal operation” or AERO. But again, for the purposes of this column, I’m calling it the “apple.”

Now let’s talk about the orange.

If you are under age 66 and getting Social Security benefits, but you are still working, the law places a limit on how much money you can earn and still get all benefits you are due. For the past couple years, that limit has been $14,160 per year. So if you keep your outside earnings under that limit, you are eligible for all of your Social Security payments. But for each $2 you go over that limit, $1 must be held back from your benefits. So, for example, if you made $16,160 last year or $2,000 over the earnings limit, then SSA must hold back $1,000 from your Social Security benefits for that year.

People are supposed to notify SSA of their anticipated earnings, so benefits can be adjusted during the year in question. But if that doesn’t happen, SSA has a computer program that checks the prior year’s earnings to determine if a beneficiary made more than the annual earnings limit. If so, that program generates a letter to the beneficiary that advises him or her that he or she has been overpaid.

So, you got a letter this year (in 2011) telling you that because you made over the $14,160 limit last year, you were paid too much money in 2010. That means one-half of whatever you earned over $14,160 must be refunded to the government.

SSA refers to this computer operation as the “annual earnings test.” It checks to make sure those Social Security beneficiaries who earn over the annual earnings limit have had some of their benefits withheld. But for the purposes of this column, I’m calling it the “orange.”

Real apples and oranges are related in that they are both fruits, of course. The apple and orange computer programs I just explained are related because both are involved with your earnings. But they still are completely separate fruits … or computer programs. Each handles a separate aspect of Social Security law.

The apple program paid you the extra Social Security benefits you were due because you had extra earnings added to your Social Security account. The orange program is asking you to return some of your Social Security payments because you earned over the $14,160 annual earnings limit.

To deal with the overpayment, you have three choices. You can file an appeal if you disagree with the amount or with the fact that you are allegedly overpaid. If you agree with the overpayment decision, but you are convinced it was not your fault AND you can prove that repaying the money would be a financial hardship, you can ask that the overpayment be “waived” or written off. Your third choice is to simply repay what you owe the government. You can do so in a lump sum or by having them withhold your current benefits until the overpaid amount has been recovered.

If you have a Social Security question, Tom Margenau has the answer. Contact him at thomas.margenau(at)



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