I plan to retire early next year (hopefully sometime shortly after February 1) and will receive a lump sum check for Vacation and Compensatory Time. I have a pension for work that I did not pay into Social Security, so my SS will be reduced because of the WEP (I have not started receiving SS yet). However I currently have over 20 years of "Substantial Earnings", so if I can earn enough in 2019 to meet the Substantial Earnings amount (I believe for 2019 that is $24,675), I can add another year to offset some of that reduction. My plan is that my January salary plus the lump sum check would total more than the $24,675 Substantial Earnings amount and 2019 would count as another year of SE. Is this the correct SE amount for 2019? How will SS view the lump sum check or will they only receive a W-2 and not know if it was salary or lump sum? Do they initiate a SSA-131 form or is that something that is only used if I wanted the funds to count in a different year than the year paid?
Yes, $24,675 is the substantial earnings amount for 2019 for purposes of the Windfall Elimination Provision (WEP). Social Security will go by the 'Social Security Wages' amount from your 2019 W-2 form, and it won't matter if that figure includes a lump sum payment for your vacation and compensatory time.
Form SSA-131 is used only for Social Security earnings test purposes, and only if the beneficiary initiates it's use. For example, say that a person retires in 2019 and receives a lump sum payment for vacation time that they'd earned and which was available for their use prior to 2019. If the inclusion of the vacation pay would cause that person's earnings to exceed the 2019 earnings test exempt amount of $17,640, they could ask for the vacation pay to be excluded from counting for purposes of the 2019 earnings test. However, even if Social Security excludes a special wage payment such as lump sum vacation pay from counting for earnings test purposes, they would still use the full W-2 'Social Security Wages' amount to determine if the person had substantial earnings for purposes of WEP.
Before filing for Social Security, you may want to strongly consider using our software to explore and compare your various filing options. Our software is fully programmed to handle WEP considerations.