by Stanley A. Tomkiel, III
Many people have misunderstandings about what happens when a wife has worked in employment covered by social security and at the same time is eligible for benefits under her husband's account. (Of course, the rules are now sex-neutral and a husband may also be eligible under his wife's account.) A common mistake is that the wife can collect both benefits without one affecting the other. Social Security has very specific rules for this situation.
The first thing to keep in mind is that if a wife is entitled on her own account, her wife's benefit is reduced by the amount of her own benefit. A wife who has worked long enough under Social Security-covered employment may receive a wife's benefit on her husband's account only if her own unreduced benefit, called the Primary Insurance Amount, is less than one-half of her husband's Primary Insurance Amount. If her own is higher than one-half of the husband's, she cannot receive the wife's benefit. If it is less, she is eligible as a wife, but only for the difference. She is not entitled to the full wife's benefit of one-half the husband's amount. And even if the wife intends to file only for wife's benefits, if she has enough work credits on her own account, she will be required by Social Security to file on her own account as well, even if this would cause her benefit to be reduced for age if she is under age 65. Unlike the rules for widow's benefits, she cannot collect one benefit reduced for age under age 65 and then switch to the other benefit unreduced at age 65.
The next thing to keep in mind is that if the husband is actually entitled to a retirement or disability benefit at the time the wife makes her application for benefits, (even if the husband's benefits are being suspended) the wife must file for wife's benefits if her Primary Insurance Amount is less than one-half of her husband's.This rule applies even if the husband is not actually receiving monthly benefits because they are being suspended (usually because of earnings). If he is not entitled because he has not yet applied, this rule does not operate because one cannot be eligible as a wife on an account that has not yet been established.
The rule that requires a wife to file on her husband's account even when his monthly benefits are being suspended can result in an unwanted reduction of the wife's benefit. This occurs when the husband is working, but is "entitled" to a retirement benefit which is not being paid because of the excess earnings. Even though no monthly benefit is being paid, he is legally entitled. This would usually occur when the husband applies for Medicare coverage at age 65, but his benefits are placed in work suspense because of his earnings. Let's say the wife is age 62 and has worked on her own account. She applies for a retirement benefit, and her Primary Insurance Amount is less than one-half of her husband's. She is required to file on his account as a wife. If she is not working (or is earning less than the allowable limit) she will receive a benefit on her own account reduced for age. Beneficiaries under age 65 are subject to reductions in their benefits, depending on how many months under age 65 they are when they first become entitled to benefits.
Even though the husband's earnings are high enough that no wife's benefits are currently payable on the husband's account, the wife's benefit amount will be fixed at the full age reduction for age 62. This means that if the husband stops working in two years when the wife is age 64, she will be paid the wife's benefit in addition to her own, but the amount of the wife's benefit will be reduced 36 months (25%), the same as if she had been receiving it all along, instead of just 12 months (about 8%), the amount it would be reduced if she were first entitled at exactly age 64. Fortunately, the reduction factor will be readjusted when she becomes 65 to exclude months before age 65 for which she did not receive a benefit. However, for the twelve months for which she will receive the wife's benefit before age 65, she will suffer the full reduction. This can be avoided if the husband had restricted his application to "Medicare only" when he applied at age 65, so that when his wife applies before he retires he will not be legally entitled to retirement benefits, and she will therefore not be required to apply as a wife. However, Social Security discourages applicants from restricting their applications to Medicare only. Nevertheless, they have that right.
A person who is entitled to a retirement or disability benefit and to a wife's benefit will receive the regular benefit on her own account, reduced for age if the retirement benefit is taken before 65, plus the difference between one half of the spouse's Primary Insurance Amount and her own. The difference also will be reduced for age if taken before 65, with the wife's reduction factor for age figured as of the time of entitlement to the wife's benefit.
Let's look at an example of the situation of Howard and Wanda, who are husband and wife. They are both the same age, have both worked, and are each eligible for retirement benefits. Howard is working full time with substantial earnings. Wanda is not working. They have just turned 62. Wanda applies for her retirement benefit. Her Primary Insurance Amount is $500. Because she is age 62 the Primary Insurance Amount is reduced 36 months (for each month before age 65) and the benefit amount is $400. Howard does not apply because he is still working. Two years later Howard retires and files for retirement benefits. His Primary Insurance Amount is $1200. Wanda decides to apply for wife's benefits on his account. Note that she has the option of waiting until she is 65 to file for the wife's benefit, at which time she can receive it without an age reduction. She has this option because when she applied for her retirement benefit on her own account, her husband was not then entitled to the benefits because he had not applied. Nevertheless, she applies now for the wife's benefit. The amount is derived by taking one-half of her husband's Primary Insurance Amount ($1,200 divided by 2 = $600, subtracting her own Primary Insurance Amount ($500) and then reducing the difference ($100) by the number of months under age 65 she is at that time, which is 12. Using the wife's reduction factor (which is slightly higher than the retirement reduction factor for benefits on one's own account), the $100 difference becomes reduced to $91. In this example then, Wanda receives $400 on her own account plus $91 on her husband's account.
For a full discussion of the rules about benefit amounts, applications and age reductions, see the author's book, Social Security Benefits Handbook (Sourcebooks), available by hyperlink from this website.
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