adopted child and who is entitled to a child's insurance benefit based on the earnings of the deceased insured individual.

(c) Amount to be deducted. The amount deducted from the wife's insurance benefit or the mother's insurance benefit, as described in paragraphs (a) and (b) of this section, is equal to the amount of the benefit which is otherwise payable for the month in which she did not have a child in her care.

(d) When child is considered not entitled to benefits. For purposes of paragraphs (a) and (b) of this section a person is considered not entitled to a child's insurance benefit for any month in which he is age 18 or over, and:

(1) Is entitled to a child's insurance benefit based on his own disability and a deduction is made from the child's insurance benefit because of his refusal of rehabilitation services as described in § 404.422(b); or

(2) Is entitled to a child's insurance benefit because he is a full-time student at an educational institution. This subparagraph applies to benefits for months after December 1964.

§ 404.422 Deductions because of refusal to accept rehabilitation services.

(a) Deductions because individual entitled to disability insurance benefits refuses rehabilitation services-(1) Disability insurance beneficiary. A deduction is made from any benefit payable to a disability insurance beneficiary for each month in which he refuses without good cause to accept rehabilitation services available to him under a State plan approved under the Vocational Rehabilitation Act.

(2) Other beneficiaries. For each month in which a deduction is made from an individual's disability insurance benefit because of his refusal to accept rehabilitation services (as described in subparagraph (1) of this paragraph), a deduction is also made from:

(i) Any wife's, husband's, or child's insurance benefit payable for that month on the earnings record of the individual entitled to disability insurance benefits;

(ii) Benefits payable for that month to the disability insurance beneficiary's spouse who is entitled (on the earnings record of a third person) to a mother's insurance benefit or to a child's insurance benefit based on disability.

(b) Deductions because individual entitled to a child's insurance benefit based on disability refuses rehabilitation services. A deduction is made from any benefit payable to an individual who has attained age 18 and is entitled to a child's insurance benefit based on disability, for each month in which he refuses without good cause to accept rehabilitation services available to him under a State plan approved under the Vocational Rehabilitation Act unless, in that month, he is a full-time student at an educational institution.

(c) Amount of deduction. The amount deducted from an individual's benefit for a month under the provisions of paragraph (a) or (b) of this section is an amount equal to the benefit otherwise payable for that month.

(d) Good cause for refusal of rehabilitation services. An individual may refuse to accept rehabilitation services (for the purposes of paragraphs (a) and (b) of this section) if his refusal is based on good cause. For example, an individual has good cause for refusing rehabilitation services where:

(1) The individual is a member or adherent of any recognized church or religious sect which teaches its members or adherents to rely solely, in the treatment and care of any physical or mental impairment, on prayer or spiritual means through the application and use of the tenets or teachings of such church or sect; and

(2) His refusal to accept rehabilitation services was due solely to his adherence to the teachings or tenets of his church or sect.

§ 404.423 Manner of making deductions.

Deductions provided for in §§ 404.415, 404.417, 404.421, and 404.422 (as modified in § 404.458) are made by withholding benefits (in whole or in part, depending upon the amount to be withheld) for each month in which an event causing a deduction occurred. If the amount to be deducted is not withheld from the benefits payable for the month in which the event causing the deduction occurred, such amount constitutes a "deduction overpayment" and is subject to adjustment or recovery in accordance with the provisions of Subpart F of this part. § 404.424 Total amount of deductions where more than one deduction event occurs in a month.

If more than one of the deduction events specified in §§ 404.415, 404.417,

and 404.421 occurred in any 1 month, each of which would occasion a deduction equal to the benefit for such month, only an amount equal to such benefit is deducted.

§ 404.425

Total amount of deductions where deduction events occur in more than 1 month.

If a deduction event described in §§ 404.415, 404.417, 404.421, and 404.422 occurs in more than 1 month, the total amount deducted from an individual's benefits is equal to the sum of the deductions for all months in which any such event occurred.

§ 404.428 Earnings in a taxable year.

(a) General. In applying the annual earnings test (see § 404.415(a)) under the provisions of this subpart, all of a beneficiary's earnings (as defined in § 404.429) for all months of his taxable year are included even though the individual is not entitled to benefits during all months of his taxable year. The taxable year of an employee is presumed to be a calendar year until it is shown to the satisfaction of the Administration that he has a different taxable year. A self-employed individual's taxable year is a calendar year unless he has a different taxable year for the purposes of subtitle A of the Internal Revenue Code of 1954. In either case, the number of months in a taxable year is not affected by (1) filing a claim for social security benefits, (2) attainment of age 18, 22, 65, 72, or any other age, (3) marriage, (4) termination of marriage, or (5) adoption. A taxable year ends with the death of the beneficiary. In such a case, the month of death is included as a month of the deceased beneficiary's taxable year in determining whether the beneficiary had excess earnings as defined in §§ 404.432, 404.433, and 404.444.

(b) When derived. Wages as defined in § 404.429 (c) are derived and includable as earnings for the months and year in which the beneficiary rendered the services. Net earnings from self-employment, or net losses therefrom, are derived, or incurred, and are includable as earnings or losses, in the year for which such earnings or losses are reportable for Federal income tax purposes.

§ 404.429 Earnings; defined.

(a) General. When the term "earnings" is used in this subpart other than as a part of the phrase "net earnings

from self-employment," it means an individual's earnings for a taxable year after 1954. It includes the sum of his wages for services rendered in such year, and his net earnings from self-employment for the taxable year, minus any net loss from self-employment for the same taxable year.

(b) Net earnings from self-employment; net loss from self-employment. An individual's net earnings from selfemployment and his net loss from selfemployment are determined under the provisions in Subpart K of this part except that:

(1) For the purposes of this section, the provisions in Subpart K of this part shall not apply that exclude from the definition of "trade or business" the following occupations:

(i) The performance of the functions of a public office;

(ii) The performance of service of a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by the order;

(iii) The performance of service by an individual in the exercise of his profession as a Christian Science practitioner;

(iv) For taxable years ending before 1965, the performance by an individual in the exercise of his profession as a doctor of medicine;

(v) For taxable years ending before 1956, the performance of service by an individual in the exercise of his profession as a lawyer, dentist, osteopath, veterinarian, chiropractor, naturopath, or optometrist.

(2) For the sole purpose of the retirement test under this subpart, an individual's gross earnings for taxable years beginning after December 1964 may not include royalties received in or after the year in which the individual attained age 65 if the royalties are attributable to a copyright or patent obtained before the taxable year in which he attained age 65 on property created by his own personal efforts.

(3) In figuring an individual's net earnings or net loss from self-employment, all net income or net loss is includable even though (i) the individual did not perform personal services in carrying on the trade or business, (ii) the net profit was less than $400, (iii) the net profit was in excess of the maximum amount creditable to his earnings record,

or (iv) the net profit was not reportable for social security tax purposes.

(4) An individual's net earnings from self-employment is the excess of income over the deductions (allowed under the Internal Revenue Code) resulting from such computation. An individual's net loss from self-employment is the excess of deductions (that are allowed under the Internal Revenue Code) over income.

(c) Wages defined. Wages include the gross amount of an individual's wages rather than the net amount paid after deductions by the employer for items such as taxes and insurance. For purposes of this section, an individual's wages are determined under the provisions of Subpart K of this part, except that, notwithstanding the provisions of Subpart K, wages also includes:

(1) Remuneration of over $6,600 in calendar years beginning with 1966, or over $4,800 in a calendar year 1959 through 1965, or over $4,200 in a calendar year 1955 through 1958; and

(2) Cash remuneration of less than $50 paid in a calendar quarter to an employee for (i) domestic service in the private home of the employer, or (ii) service not in the course of the employer's trade or business; and

of

(3) Cash remuneration of less than $150 ($100 in calendar years 1955 or 1956) paid by an employer for services in agricultural labor regardless whether the employee worked for the employer on 20 or more different days in the year; and

(4) Remuneration, cash and noncash, for service as a homeworker even though the cash remuneration paid the employee is less than $50 in a calendar quarter; and

(5) For taxable years ending after 1955, services performed outside the United States in the military or naval service of the United States; and

(6) Remuneration for services excepted from employment performed within the United States by an individual as an employee that are for that reason not considered wages under Subpart K, if the remuneration for such services is not includable in computing his net earnings from self-employment or net loss from self-employment, as defined in paragraph (b) of this section.

(d) Presumptions concerning wages. For purposes of this section, where reports received by the Administration show wages (as defined in paragraph (c)

of this section) were paid to an individual during a taxable year, it is presumed that they were paid to him for services rendered in that year until such time as it is shown to the satisfaction of the Administration that the wages were paid for services rendered in another taxable year. If the reports of wages paid to an individual show his wages for a calendar year, the individual's taxable year is presumed to be a calendar year for purposes of this section until it is shown to the satisfaction of the Administration that his taxable year is not a calendar year. § 404.432 Excess earnings; defined for taxable years ending after December 1965.

For taxable years ending after December 1965, an individual's excess earnings are the amount of his earnings (as described in § 404.429) that exceed $125 times the number of months in his taxable year, except that his excess earnings do not include an amount equal to onehalf of the first $1,200 of such excess amount (or equal to one-half of the entire excess amount if the excess is less than $1,200). Where the excess amount so figured is not a multiple of $1, it is reduced to the next lower dollar. Thus, in the usual 12-month-taxable-year case, an individual's excess earnings are computed as follows:

(a) $1 for each $2 of earnings over $1,500, up to and including $2,700; and (b) $1 for each $1 over $2,700.

[32 F.R. 19159, Dec. 20, 1967; 33 F.R. 3060, Jan. 16, 1968]

§ 404.433 Excess earnings; defined for taxable years beginning after December 1960 or ending after June 1961—up to and including_taxable years ending December 31, 1965. For taxable years beginning after December 1960, or ending after June 1961; up to and including taxable years ending December 31, 1965, an individual's excess earnings in a taxable year are the amount of his earnings (as described in § 404.429) for such year that exceed $100 times the number of months in his taxable year, except that his excess earnings do not include an amount equal to one-half of the first $500 of such excess amount (or equal to one-half of the entire excess amount if the excess is less than $500). Where the excess amount so figured is not a multiple of $1, it is reduced to the next lower dollar. Thus, in the usual 12month-taxable-year case, an individual's excess earnings are computed as follows:

(a) Months charged. For purposes of imposing deductions for taxable years after 1960, the excess earnings (as described in §§ 404.432 and 404.433) of an individual are charged to each month beginning with the first month the individual is entitled in the taxable year in question and continuing, if necessary, to each succeeding month in such taxable year until all of the individual's excess earnings have been charged. Excess earnings, however, are not charged to any month described in §§ 404.435 and 404.436.

(b) Amount of excess earnings charged (1) Insured individual's excess earnings. The insured individual's excess earnings are charged on the basis of $1 of excess earnings for each $1 of monthly benefits to which he and all other persons are entitled (or deemed entitled-see § 404.420) for such month on the insured individual's earnings record. (See § 404.439 where the excess earnings for a month are less than the total benefits payable for that month.)

(2) Excess earnings of beneficiary other than insured individual. The excess earnings of a person other than the insured individual are charged on the basis of $1 of excess earnings for each $1 of monthly benefits to which he is entitled (see § 404.437) for such month. The excess earnings of such person, however, are charged only against his own benefits.

(3) Insured individual and person entitled (or deemed entitled) on his earnings record both have excess earnings. If both the insured individual and a person entitled (or deemed entitled) on his earnings record have excess earnings (as described in §§ 404.432 and 404.433), the insured individual's excess earnings are charged first against the total family benefits payable (or deemed payable) on his earnings record, as described in subparagraph (1) of this paragraph. Next, the excess earnings of a person entitled on the insured individual's earnings record are charged (as described in subparagraph (2) of this paragraph) against his own benefits, but only to the extent that his benefits have not already been charged with the excess earnings of the insured individual. See § 404.441 for an

example of this process and the manner in which partial monthly benefits are apportioned.

§ 404.435

Excess earnings; months to which excess earnings cannot be charged.

(a) Taxable years ending after 1965. Notwithstanding any of the provisions described in this subpart, an individual's excess earnings in a taxable year ending after 1965 are not charged to any month in which he:

(1) Was not entitled to a monthly benefit;

(2) Was deemed not entitled to benefits (due to noncovered work outside the United States, no child in care, or refusal of rehabilitation, as described in § 404.436);

(3) Was age 72 or over;

(4) Was entitled to payment of a disability insurance benefit;

(5) Was age 18 or over and entitled to a child's insurance benefit based on disability; or

(6) Did not engage in self-employment (see paragraphs (c) and (e) of this section) and did not render services for wages (see paragraph (d) of this section) of more than $125.

(b) Taxable years beginning after 1960 or ending after June 1961-up to and including taxable years ending before 1966. Notwithstanding any of the provisions described in this subpart, an individual's excess earnings in a taxable year beginning after December 1960, or ending after June 1961; up to and including taxable years ending before 1966 are not charged to any month in which the individual:

(1) Was not entitled to benefits; (2) Was deemed not entitled to benefits (see § 404.436);

(3) Was age 72 or over;

(4) Was entitled to a disability insurance benefit payment;

(5) Was age 18 or over and entitled to a child's insurance benefit based on disability; or

(6) Did not engage in self-employment (see paragraphs (c) and (e) of this section) and did not render services for wages (see paragraph (d) of this section) of more than $100.

(c) When an individual is deemed to have engaged in self-employment. An individual is deemed to have engaged in self-employment in any month in which he renders substantial services (as defined in § 404.446) in the operation of a

t trade or business (or in a combination of trades and businesses if there are more than one) as owner or partner even though there may be no earnings or net earnings from self-employment attributable to his services for such month.

(d) Presumption regarding "services for wages." With respect to paragraphs (a) (6) and (b)(6) of this section, and S 404.444 (c) (5), an individual is pre!sumed to have rendered services in any month for wages (as defined in § 404.429) of more than $125, or more than $100, or more than $80, whichever amount is applicable, until it is shown to the satisfaction of the Administration that the individual did not render services in such month for more than such amount.

(e) Presumption regarding "engaged in self-employment." With respect to paragraphs (a) (6) and (b) (6) of this section, and § 404.444 (c) (5), an individual is presumed to have engaged in selfemployment in each month of his taxable year until it is shown to the satisfaction of the Administration that in a particular month he did not render substantial services (see § 404.446(c)) with respect to any trade or business (or in a combination of trades and businesses if there are more than one) the net income or loss of which is includable in computing his earnings as defined in § 404.429.

§ 404.436 Excess earnings; months to which excess earnings cannot be charged because individual is deemed not entitled to benefits.

Under the annual earnings test, excess earnings (as described in § 404.432 and § 404.433) are not charged to any month in which an individual is deemed not entitled to a benefit. A beneficiary (i.e., the insured individual or any person entitled or deemed entitled on the insured individual's earnings record) is deemed not entitled to a benefit for a month if he is subject to a deduction for that month because of:

(a) Engaging in noncovered remunerative activity outside the United States (as described in § 404.417 and § 404.418);

or

(b) Failure to have a child in her care (in the case of a wife under age 65 or a widow or surviving divorced mother under age 62, as described in § 404.421); or

(c) Refusal by a person entitled to a child's insurance benefit based on disability to accept rehabilitation services (as described in § 404.422). (An insured

individual's excess earnings are not charged against the benefit of a child entitled (or deemed entitled) on the insured individual's earnings record for any month in which the child is subject to a deduction for refusing rehabilitation services); or

(d) Refusal by an individual entitled to a disability insurance benefit to accept rehabilitation services as described in § 404.422 (e.g., a wife's excess earnings may not be charged against her benefits for months in which the disability insurance beneficiary on whose account she is entitled to wife's benefits incurs a deduction because he refuses rehabilitation services; also, a woman's earnings may not be charged against the mother's insurance benefit or child's insurance benefit she is receiving (on the earnings record of another individual) for months in which her husband refuses rehabilitation services while he is entitled to a disability insurance benefit).

§ 404.437

Excess earnings; benefit rate subject to deductions because of excess earnings.

For purposes of deductions because of excess earnings (as described in §§ 404.432 and 404.433), the benefit rate against which excess earnings are charged is the amount of the benefit (other than a disability insurance benefit) to which the person is entitled for the month:

(a) After reduction for the "maximum" (see §§ 404.403 and 404.404). The rate as reduced for the maximum as referred to in this paragraph is the one applicable to remaining entitled beneficiaries after exclusion of beneficiaries deemed not entitled under § 404.436 (due to a deduction for engaging in noncovered remunerative activity outside the United States, failure to have a child in her care, or refusal to accept rehabilitation services);

(b) After any reduction under section 202 (q) of the Act because of entitlement to benefits for months before age 65 (this applies only to old-age, wife's, widow's, or husband's benefits);

(c) After any reduction in benefits payable to a person entitled (or deemed entitled; see § 404.420) on the earnings record of the insured individual because of entitlement on his own earnings record to other benefits (see § 404.407); and

(d) After any reduction of benefits payable to a person entitled or deemed entitled on the earnings record of an