How Is The 2019 Substantial Earnings Amount Calculated?

Nov 23 2018 - 9:28am

How is 2019 Substantial Earnings calculated? A person would need to make almost $4.00 an hour more than minimum wage to make 2018 Substantial Earnings. This discriminates against people working at minimum wage. How is this fair?

Hi,

For the benefit of others who may be reading this, 'substantial earnings' is the minimum amount of Social Security covered earnings that a person must earn in a year in order to be credited with a year of coverage (YOC) used to determine whether or not they are exempt from the Windfall Elimination Provision (WEP). The annual substantial earnings amount has no significance outside of the WEP provision (https://www.ssa.gov/pubs/EN-05-10045.pdf). WEP can only affect the Social Security retirement or disability benefits of someone who also receives a pension based on their earnings which were exempt from Social Security taxes. A person with at least 30 YOCs is exempt from any WEP reduction to their Social Security benefits, and people with 21 to 29 YOCs can lessen the WEP reduction.

For earnings years prior to 1979, the substantial earnings amount is based on 25% of the maximum amount of earnings subject to Social Security taxes. For years after 1978, the substantial earnings amount is set at 25% of the maximum amount of earnings that would have been subject to Social Security taxes prior to changes made in the 1977 Social Security amendments. The 1977 amendments basically increased the maximum annual amount of earnings subject to Social Security taxes, so basing the substantial earnings amount on 25% of the old-law rules actually limits the substantial earnings amount to less than 25% of the new law maximums (https://www.ssa.gov/OACT/COLA/yoc.html). For example, the 2019 substantial earnings amount of $24,675 is roughly 18.57% of the new law 2019 maximum earnings that will be subject to Social Security taxes (i.e. $132,900).

Whether or not the method for calculating substantial earnings is fair depends on each person's perspective. However, the bottom line is that the substantial earnings amounts are based on the calculation method passed into law by Congress, so it would require an act of Congress to change the way that substantial earnings are figured.

Best, Jerry