self-employment of $8,300. Thus, C's earnings from self-employment are deemed to equal $8,300 for 1957.

(d) Wages and self-employment income involved. In any such calendar year in which both wages and selfemployment income are credited to an individual's earnings record, the amount of such individual's total earnings for such calendar year is deemed to equal the total of his wages as determined under the provisions of (b) of this subdivision and the amount of his net earnings from self-employment as determined under the provisions of (c) of this subdivision.

Example. For the calendar year 1967 in which $6,600 is the maximum creditable earnings under sections 209 (a) and 211(b)(1) of the Act, D who was both employed and selfemployed has the following amounts credited to his earnings record:

Since the amount of wages credited do not equal or exceed the maximum amount creditable under section 209 (a) of the Act, D's total wages for the year are deemed to be $6,000. However, the amount of net earnings from self-employment shown on D's selfemployment tax return is $2,300. D's earnings from self-employment are deemed to equal net earnings from self-employment which he reported for the year. Thus, D's earnings for 1967 are estimated as follows: Wages $6,000 Net earnings from selfemployment

Total

2,300

8, 300

(4) Reentitlement to disability insurance benefits. If an individual's entitlement to disability insurance benefits terminates and such individual again becomes entitled to disability insurance benefits, the amount of the reduction is again computed based on the figures specified in this paragraph (c) applicable to the subsequent entitlement.

(d) Items not counted for reduction. Amounts included in the workmen's compensation award which are specifically identifiable as being for medical, legal or related expenses paid or incurred by the individual in connection with his

workmen's compensation claim, or the injury or occupational disease on which it is based, are excluded in computing the reduction under paragraph (a) of this section.

(e) Certification by individual concerning eligibility for workmen's compensation payment. Where it appears that an individual may be eligible for a periodic benefit under a workmen's compensation law or plan which would give rise to reduction under paragraph (a) of this section, the individual may be required, as a condition of certification for payment of any benefit under section 223 of the Act to any individual for any month, and of any benefit under section 202 of the Act for such month based on such individual's earnings record, to furnish evidence as requested by the Administration and to certify as to:

(1) Whether he has filed or intends to file any claim for such periodic benefit, and

(2) If he has so filed, whether there has been a decision on such claim. In the absence of eivdence to the contrary, reliance may be placed upon a certification that he has not filed and does not intend to file such a claim, or that he has filed and no decision has been made, in certifying any benefit for payment pursuant to section 205 (i) of the Act.

(f) Workmen's compensation benefit payable on other than a monthly basis. Where workmen's compensation benefits are paid periodically but not monthly, or in a lump sum as a commutation of or a substitute for periodic benefits, the reduction under this section is made at such time or times and in such amounts as the Administration determines will approximate as nearly as practicable the reduction required under paragraph (a) of this section.

(g) Priorities. (1) For an explanation of when a reduction is made under this section where other reductions, deductions, etc., are involved, see § 404.402.

(2) Whenever a reduction in the total of benefits for any month based on an individual's earnings record is made under paragraph (a) of this section, each benefit, except the disability insurance benefit, is first proportionately decreased, and any excess of such reduction over the sum of all such benefits other than the disability insurance benefit is then applied to such disability insurance benefit.

Example: Under title II of the Act, A is entitled to a monthly disability insurance benefit of $122. His wife, B, and his two

children, C and D, are entitled to monthly insurance benefits of $61 each. After adjustment for the family maximum under section 203 (a) of the Act, the benefits are $122 for A and $50.60 for B, C, and D making a total of title II benefits of $273.80. In computing A's "average current earnings," it is determined that A's average monthly wage used in computing his benefit rate is $340, and his average monthly wage for his 5 years of highest earnings after 1950 is $400. Therefore, 80 percent of his "average current earnings" for purposes of the workmen's compensation deduction is $320.

A becomes entitled to workmen's compensation of $48 a week, which converted to a monthly rate amount to $208 a month (i.e., 43 times $48). The total monthly benefits payable under title II of the Act ($273.80) plus the monthly workmen's compensation amount ($208) equals $481.80. The amount of the reduction for workmen's compensation is $161.80 ($481.80 minus $320); and the family benefit payable is $112 ($273.80 minus $161.80 equals $112). (The same result is obtained by subtracting the workmen's compensation amount ($208) from the applicable limit ($320).)

In this example, the $161.80 reduction would be applied first against the three section 202 benefits ($50.60 times 3 equals $151.80) leaving $10 to be deducted from the disability insurance benefit.

(h) Effect of changes in family composition. The addition or subtraction in the number of beneficiaries in a family may cause the family benefit to become, or cease to be, the applicable limit for reduction purposes under this section. When the family composition changes, the amount of the reduction is recomputed as though the new number of beneficiaries were entitled for the first month the reduction was imposed, i.e., the same average monthly wage, average current earnings, and workmen's compensation amount and the total benefits payable under title II of the Act for the new number of beneficiaries which would have been subjected to reduction for that first month are used. If the applicable limit both before and after the change is 80 percent of the average earnings, the amount payable remains the same and is simply redistributed among the beneficiaries entitled on the same earnings record.

Example: F is entitled to disability insurance benefits of $110.30 based on an average monthly wage of $289. His wife, G, and his child, H, are entitled to benefits under section 202 of the Act of $55.20 each. F becomes entitled to workmen's compensation of $192 a month. His average monthly wage for his 5 years of highest earnings after 1950 is $260. The applicable limit on total benefits pay

36-040-70— -25

(Deducting the workmen's compensation amount ($192) from 80 percent of the average current earnings ($231.20) gives the same amount payable ($39.20).)

Later, another child, J, becomes entitled on F's earnings record and the benefits after adjustment for the family maximum but before reduction for the workmen's compensation become $110.30 to F, and $40.90 to G, H, and J each. Since the total family benefit is now higher than 80 percent of F's average current earnings, the total family benefit becomes the applicable limit and the amount payable is figured merely by deducting the workmen's compensation ($192) from the total title II benefits ($233) leaving $41 payable to F.

(i) Effect on benefit increases. Any increase in benefits due to a recomputation or a statutory increase in benefit rates is not subject to the reduction for workmen's compensation and does not change the amount to be deducted from the family benefits. The increase is simply added to what amount if any is payable. If a new beneficiary becomes entitled to monthly benefits on the same earnings record after the increase, the amount of the reduction is redistributed among the new number of beneficiaries entitled under section 202 of the Act and deducted from their current benefit rate.

Example: K is entitled to disability insurance benefits of $118.80 and his wife, L, and his two children, M and N, are entitled to benefits under section 202 of the Act of $47.90 each (after reduction under section 203(a) to conform to the family maximum of $262.40). K becomes entitled to workmen's compensation of $30 per week ($130 per month). The total family benefit is higher by 10 cents than 80 percent of K's average current earnings (80 percent of $328, or $262.40). Therefore, the reduction amount equals the monthly workmen's compensation. One-third of this amount (rounded downward to the nearest 10 cents), i.e., $43.30, is deducted from L, M, and N's benefits leaving benefits payable as follows: $118.80 to K, and $4.60 each to L, M, and N.

Beginning in September 1966, a statutory increase raises K's disability insurance benefit to $122 and causes L, M, and N's benefits to be increased to $50.60 each (an increase of $2.70). The benefits then payable become: $122 to K, and $7.30 (i.e., $4.60 plus $2.70) each to L, M, and N.

In February 1967, O, another child of K, becomes entitled to benefits under section 202 of the Act based on K's earnings record. The benefits payable now become $122 to K, and $37.90 each to L, M, N, and O. The amount to be deducted from the family remains the same, $130, but is to be divided among four beneficiaries instead of three. Deducting one-fourth of $130 ($32.50) from $37.90 leaves $5.40 each to L, M, N, and O, and $122 to K.

(j) Redetermination of benefits—(1) General. In the second calendar year after the year in which reduction under this section in the total of an individual's benefits under section 223 of the Act and any benefits under section 202 of the Act based on his wages and self-employment income is first required (in a continuous period of months), and in each third year thereafter, the amount of such benefits which are still subject to reduction under this section are redetermined, provided such redetermination does not result in any decrease in the total amount of benefits payable under title II of the Act on the basis of such individual's wages and self-employment income. Such redetermined benefit is effective with the January following the year in which the redetermination is made.

(2) Average current earnings. In making the redetermination required by subparagraph (1) of this paragraph, the individual's "average current earnings" (as defined in paragraph (c)(3) of this section) is deemed to be the product of his average current earnings as initially determined under paragraph (c)(3) of this section and the ratio of:

(1) The average of the taxable wages of all persons for whom taxable wages were reported to the Secretary for the first calendar quarter of the calendar year in which such redetermination is made, to

(ii) The average of the taxable wages of such persons reported to the Secretary for the first calendar quarter of the taxable year in which the reduction was first computed (but not counting any reduction made in benefits for a previous period of disability). Any amount determined under the preceding sentence

which is not a multiple of $1 is reduced to the next lower multiple of $1.

(3) Effect of redetermination. Where the applicable limit on total benefits previously used was 80 percent of the average current earnings, a redetermination under this paragraph may cause an increase in the amount of benefits payable. Also, where the limit previously used was the total family benefit, the redetermination may cause the average current earnings to exceed the total family benefit and thisu become the new applicable limit. If for some other reason (such as a statutory increase or recomputation) the benefit has already been increased to a level which equals or exceeds the benefit resulting from a redetermination under this paragraph, no additional increase is made. A redetermination is designed to bring benefits into line with current wage levels when no other change in payments has done so.

Example: Beginning January 1968, P is entitled to a disability insurance benefit of $140 and his wife, R, and child, S, are entitled to benefits under section 202 of the Act of $70 each. P becomes entitled to workmen's compensation of $208 per month. In this case, the applicable limit on the combined benefits is $360 (80 percent of P's average current earnings). Deducting the workmen's compensation amount of $208 from this limit leaves family benefits payable of $152 ($140 to P and $6 to R and S each). In 1970 a redetermination raises 80 percent of P's average current earnings to $380 effective January 1971. Thus, the family benefit payable becomes $172 ($380 minus $208). P's benefit is $140, and R's and S's benefits are $16 each.

If there had been a benefit increase in 1969 (either by a statutory increase or a recomputation) increasing P's benefit by $10 (to $150) and each other benefit by $5 (to $11), the family would already be receiving $172 ($150 plus $11 plus $11 equals $172) at the time of the redetermination, so that they would not get an additional increase. If the 1969 benefit increase made less than $172 payable to the family, the redetermination would increase the benefit to $172. Any statutory increase that takes effect after the redetermination would be added to the total family benefit.

[32 F.R. 19159, Dec. 20, 1967; 33 F.R. 3060, Feb. 16, 1968, as amended at 34 F.R. 13312, Aug. 16, 1969]

higher multiple of 10 cents. Since a fraction of a cent is not a multiple of 10 cents, any benefit amount which contains any such fraction is raised to the next higher multiple of 10 cents. Thus, a child's insurance benefit of $26.104 is rounded to $26.20.

(b) Increase of survivor's benefit to an amount equal to “minimum.” For months beginning with January 1965, where only one person is entitled to a benefit for a month based on the earnings record of a deceased individual and such benefit is less than $44, such benefit, before any reduction described in § 404.407 and any reduction for age under section 202(q) of the Act, is raised to $44. (For months after July 1961 and before January 1965, the minimum benefit was $40. For months after December 1959 and before August 1961, the minimum benefit was $33. For months after August 1954 and before January 1959, the minimum benefit was $30.)

§ 404.415 Deductions because of excess earnings; annual earnings test.

(a) Deductions because of beneficiary's earnings. Under the annual earnings test, deductions are made from monthly benefits (except disability insurance benefits or child's insurance benefits based on the child's disability) payable to a beneficiary for each month in a taxable year beginning after December 1954 in which the beneficiary is under age 72 and to which excess earnings are charged under the provisions described in §§ 404.434 or 404.444.

(b) Deductions from husband's, wife's, or child's benefits because of excess earnings of the insured individual. Deductions are made from the wife's, husband's, or child's insurance benefits payable (or deemed payable-see § 404.420) on the insured individual's earnings record because of the excess earnings of the insured individual under the provisions described in § 404.416.

total of the benefits payable to him and to all other persons entitled (or deemed entitled-see § 404.420) on his earnings record for that month. This deduction is an amount equal to the amount of the excess earnings so charged. (See § 404.434 concerning the manner of charging such excess earnings.)

(2) Deductions because of excess earnings of other beneficiary. For taxable years beginning after 1960, or ending after June 1961, if benefits are payable to a person entitled (or deemed entitled-see § 404.420) on the earnings record of the insured individual, and such person has excess earnings (as described in §§ 404.432 and 404.433) charged to a month, a deduction is made from his benefits only for that month. This deduction is an amount equal to the amount of the excess earnings charged. (See § 404.434 for charging of excess earnings where both the insured individual and such person have excess earnings.)

(b) Taxable years beginning after 1954 and before 1961, and for taxable years ending before July 1961. For taxable years beginning after 1954 and before 1961, and for taxable years ending before July 1961, if an individual is charged with excess earnings in a month, a deduction is made from the individual's benefit for such month in an amount equal to the benefit payable to the individual for that month. If such a deduction is made and benefits are payable to any other person entitled (or deemed entitled-see § 404.420) on such individual's earnings record, a deduction is also made from the benefits payable to such other person. This deduction is an amount equal to the total of the benefits payable to such other person for that month. (See § 404.444 concerning the manner of charging such excess earnings.)

§ 404.417

Deductions because of noncovered remunerative activity outside the United States; 7-day work test. (a) Deductions because of individual's activity. Under the 7-day work test, a deduction is made from any monthly benefit (except disability insurance benefits or child's insurance benefits based on the child's disability) payable to an individual for each month in a taxable year beginning after December 1954 in which he, while under age 72, engages in noncovered remunerative activity (see § 404.418) outside the United States on seven or more different calendar days. This de

duction is an amount equal to the benefit payable to the individual for that month.

(b) Deductions from benefits because of earnings or work of an insured individual. If a deduction, as described in paragraph (a) of this section, is made from the insured individual's benefit for a month, a deduction is also made from any wife's, husband's, or child's insurance benefit payable (or deemed payable-see § 404.420) for that month on the insured individual's earnings record. This deduction is an amount equal to any such benefit.

$404.418 "Noncovered remunerative activity outside the United States," defined.

An individual is engaged in noncovered remunerative activity outside the United States for purposes of deductions described in § 404.417 if:

(a) He performs services outside the United States as an employee and the services do not constitute employment as defined in Subpart K of this part and, for taxable years ending after 1955, the services are not performed in the active military or naval service of the United States; or

(b) He carries on a trade or business outside the United States (other than the performance of services as an employee) the net income or loss of which is not includable in computing his net earnings from self-employment (as defined in § 404.1050) for a taxable year and would not be excluded from net earnings from self-employment

(see

§ 404.1052) if the trade or business were I carried on in the United States. When used in the preceding sentence with respect to a trade or business, the term "United States" does not include the Commonwealth of Puerto Rico, the Virgin Islands and, with respect to taxable years beginning after 1960, Guam or American Samoa, in the case of an alien who is not a resident of the United States (including the Commonwealth of Puerto Rico, the Virgin Islands and, with respect to taxable years beginning after 1960, Guam and American Samoa), and the term "trade or business" shall have the same meaning as when used in section 162 of the Internal Revenue Code of 1954.

§ 404.420 Persons deemed entitled to benefits based on an individual's earnings record.

For purposes of imposing deductions under the annual earnings test (see § 404.415) and the 7-day work test (see §404.417), a person who is married to an old-age insurance beneficiary and who is entitled to either a mother's insurance benefit or a child's insurance benefit based on the child's disability (and such mother's or child's benefit is based on the earnings record of some third person) is deemed entitled to such benefit based on the earnings record of the old-age insurance beneficiary to whom he or she is married. This paragraph is effective for months in any taxable year of the old-age insurance beneficiary that begins after August 1958. § 404.421 Deductions because beneficiary failed to have a child in her

care.

Deductions for failure to have a child "in her care" (as defined in Subpart D) are made as follows:

(a) Wife's insurance benefits. A deduction is made from the wife's insurance benefit to which a woman (excluding a "divorced wife" as defined in § 404.1105) is entitled for any month in which she is under age 65 and does not have in her care a child of her husband entitled to a child's insurance benefit. However, a deduction is not made for any month in which she is age 62 or over, but under age 65, and there is in effect a certificate of election for her to receive an actuarially reduced wife's insurance benefit for such month (see Subpart D of this part).

(b) Mother's insurance benefits-(1) Widow. A deduction is made from the mother's insurance benefit to which a woman is entitled as the widow (see Subpart D of this part) of the deceased individual upon whose earnings such benefit is based, for any month in which she does not have in her care a child of the individual entitled to a child's insurance benefit.

(2) Surviving divorced mother (previously designated former wife divorced). A deduction is made from the mother's insurance benefit to which a woman is entitled as the surviving divorced mother (see Subpart D of this part) of the deceased individual upon whose earnings record such benefit is based, for any month in which she does not have in her care a child of the deceased individual who is her son, daughter, or legally