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Computation

The determination of the national average wage index for calendar year 2005 is based on the 2004 national average wage index of $35,648.55 announced in the Federal Register on October 25, 2005 (70 FR 61677), along with the percentage increase in average wages from 2004 to 2005 measured by annual wage data tabulated by the Social Security Administration (SSA). The wage data tabulated by SSA include contributions to deferred compensation plans, as required by section 209(k) of the Act. The average amounts of wages calculated directly from these data were $34,197.63 and $35,448.93 for 2004 and 2005, respectively. To determine the national average wage index for 2005 at a level that is consistent with the national average wage indexing series for 1951 through 1977 (published December 29, 1978, at 43 FR 61016), we multiply the 2004 national average wage index of $35,648.55 by the percentage increase in average wages from 2004 to 2005 (based on SSA-tabulated wage data) as follows, with the result rounded to the nearest cent.

Amount.

Multiplying the national average wage index for 2004 ($35,648.55) by the ratio of the average wage for 2005 ($35,448.93) to that for 2004 ($34,197.63) produces the 2005 index, $36,952.94. The national average wage index for calendar year 2005 is about 3.66 percent greater than the 2004 index.

OASDI Contribution and Benefit Base

General

The OASDI contribution and benefit base is $97,500 for remuneration paid in 2007 and self-employment income earned in taxable years beginning in 2007. The OASDI contribution and benefit base serves two purposes:

(a) It is the maximum annual amount of earnings on which OASDI taxes are paid. The OASDI tax rate for remuneration paid in 2007 is 6.2 percent for employees and employers, each. The OASDI tax rate for self-employment income earned in taxable years beginning in 2007 is 12.4 percent. (The Hospital Insurance tax is due on remuneration, without limitation, paid in 2007, at the rate of 1.45 percent for employees and employers, each, and on self-employment income earned in taxable years beginning in 2007, at the rate of 2.9 percent.)

(b) It is the maximum annual amount of earnings used in determining a person's OASDI benefits.

Computation

Section 230(b) of the Act provides the formula used to determine the OASDI contribution and benefit base. Under the formula, the base for 2007 shall be the larger of: (1) The 1994 base of $60,600 multiplied by the ratio of the national average wage index for 2005 to that for 1992; or (2) the current base ($94,200). If the resulting amount is not a multiple of $300, it shall be rounded to the nearest multiple of $300.

Amount

Multiplying the 1994 OASDI contribution and benefit base amount ($60,600) by the ratio of the national average wage index for 2005 ($36,952.94 as determined above) to that for 1992 ($22,935.42) produces the amount of $97,637.11. We round this amount to $97,500. Because $97,500 exceeds the current base amount of $94,200, the OASDI contribution and benefit base is $97,500 for 2007.

Retirement Earnings Test Exempt Amounts

General

We withhold Social Security benefits when a beneficiary under the normal retirement age (NRA) has earnings in excess of the applicable retirement earnings test exempt amount. (NRA is the age of initial benefit entitlement for which the benefit, before rounding, is equal to the worker's primary insurance amount. The NRA is age 65 for those born before 1938, and it gradually increases to age 67.) A higher exempt amount applies in the year in which a person attains his/her NRA, but only with respect to earnings in months prior to such attainment, and a lower exempt amount applies at all other ages below NRA. Section 203(f)(8)(B) of the Act, as amended by section 102 of Public Law 104-121, provides formulas for determining

the monthly exempt amounts. The corresponding annual exempt amounts are exactly 12 times the monthly amounts.

For beneficiaries attaining NRA in the year, we withhold $1 in benefits for every $3 of earnings in excess of the annual exempt amount for months prior to such attainment. For all other beneficiaries under NRA, we withhold $1 in benefits for every $2 of earnings in excess of the annual exempt amount.

Computation

Under the formula applicable to beneficiaries who are under NRA and who will not attain NRA in 2007, the lower monthly exempt amount for 2007 shall be the larger of: (1) The 1994 monthly exempt amount multiplied by the ratio of the national average wage index for 2005 to that for 1992; or (2) the 2006 monthly exempt amount ($1,040). If the resulting amount is not a multiple of $10, it shall be rounded to the nearest multiple of $10.

Under the formula applicable to beneficiaries attaining NRA in 2007, the higher monthly exempt amount for 2007 shall be the larger of: (1) The 2002 monthly exempt amount multiplied by the ratio of the national average wage index for 2005 to that for 2000; or (2) the 2006 monthly exempt amount ($2,770). If the resulting amount is not a multiple of $10, it shall be rounded to the nearest multiple of $10. Lower Exempt Amount

Multiplying the 1994 retirement earnings test monthly exempt amount of $670 by the ratio of the national average wage index for 2005 ($36,952.94) to that for 1992 ($22,935.42) produces the amount of $1,079.49. We round this to $1,080. Because $1,080 is larger than the corresponding current exempt amount of $1,040, the lower retirement earnings test monthly exempt amount is $1,080 for 2007. The corresponding lower annual exempt amount is $12,960 under the retirement earnings test.

Higher Exempt Amount

Multiplying the 2002 retirement earnings test monthly exempt amount of $2,500 by the ratio of the national average wage index for 2005 ($36,952.94) to that for 2000 ($32,154.82) produces the amount of $2,873.05. We round this to $2,870. Because $2,870 is larger than the corresponding current exempt amount of $2,770, the higher retirement earnings test monthly exempt amount is $2,870 for 2007. The corresponding higher annual exempt amount is $34,440 under the retirement earnings test.

Computing Benefits After 1978

General

The Social Security Amendments of 1977 provided a method for computing benefits which generally applies when a worker first becomes eligible for benefits after 1978. This method uses the worker's "average indexed monthly earnings" to compute the primary insurance amount. We adjust the computation formula each year to reflect changes in general wage levels, as measured by the national average wage index.

We also adjust, or "index," a worker's earnings to reflect the change in general wage levels that occurred during the worker's years of employment. Such indexation ensures that a worker's future benefit level will reflect the general rise in the standard of living that will occur during his or her working lifetime. To compute the average indexed monthly earnings, we first determine the required number of years of earnings. Then we select that number of years with the highest indexed earnings, add the indexed earnings, and divide the total amount by the total number of months in those years. We then round the resulting average amount down to the next lower dollar amount. The result is the average indexed monthly earnings.

For example, to compute the average indexed monthly earnings for a worker attaining age 62, becoming disabled before age 62, or dying before attaining age 62, in 2007, we divide the national average wage index for 2005, $36,952.94, by the national average wage index for each year prior to 2005 in which the worker had earnings. Then we multiply the actual wages and self-employment income, as defined in section 211(b) of the Act and credited for each year, by the corresponding ratio to obtain the worker's indexed earnings for each year before 2005. We consider any earnings in 2005 or later at face value, without indexing. We then compute the av

erage indexed monthly earnings for determining the worker's primary insurance amount for 2007.

Computing the Primary Insurance Amount

The primary insurance amount is the sum of three separate percentages of portions of the average indexed monthly earnings. In 1979 (the first year the formula was in effect), these portions were the first $180, the amount between $180 and $1,085, and the amount over $1,085. We call the dollar amounts in the formula governing the portions of the average indexed monthly earnings the "bend points" of the formula. Thus, the bend points for 1979 were $180 and $1,085.

To obtain the bend points for 2007, we multiply each of the 1979 bend-point amounts by the ratio of the national average wage index for 2005 to that average for 1977. We then round these results to the nearest dollar. Multiplying the 1979 amounts of $180 and $1,085 by the ratio of the national average wage index for 2005 ($36,952.94) to that for 1977 ($9,779.44) produces the amounts of $680.15 and $4,099.82. We round these to $680 and $4,100. Accordingly, the portions of the average indexed monthly earnings to be used in 2007 are the first $680, the amount between $680 and $4,100, and the amount over $4,100.

Consequently, for individuals who first become eligible for old-age insurance benefits or disability insurance benefits in 2007, or who die in 2007 before becoming eligible for benefits, their primary insurance amount will be the sum of

(a) 90 percent of the first $680 of their verage indexed monthly earnings, plus (b) 32 percent of their average indexed monthly earnings over $680 and through $4,100, plus

(c) 15 percent of their average indexed monthly earnings over $4,100.

We round this amount to the next lower multiple of $0.10 if it is not already a multiple of $0.10. This formula and the rounding adjustment described above are contained in section 215(a) of the Act (42 U.S.C. 415(a)).

Maximum Benefits Payable to a Family

General

The 1977 amendments continued the long established policy of limiting the total monthly benefits that a worker's family may receive based on his or her primary insurance amount. Those amendments also continued the then existing relationship between maximum family benefits and primary insurance amounts but did change the method of computing the maximum amount of benefits that may be paid to a worker's family. The Social Security Disability Amendments of 1980 (Pub. L. 96265) established a formula for computing the maximum benefits payable to the family of a disabled worker. This formula applies to the family benefits of workers who first become entitled to disability insurance benefits after June 30, 1980, and who first become eligible for these benefits after 1978. For disabled workers initially entitled to disability benefits before July 1980, or whose disability began before 1979, we compute the family maximum payable the same as the old-age and survivor family maximum.

Computing the Old-Age and Survivor Family Maximum

The formula used to compute the family maximum is similar to that used to compute the primary insurance amount. It involves computing the sum of four separate percentages of portions of the worker's primary insurance amount. In 1979, these portions were the first $230, the amount between $230 and $332, the amount between $332 and $433, and the amount over $433. We refer to such dollar amounts in the formula as the "bend points" of the family-maximum formula.

To obtain the bend points for 2007, we multiply each of the 1979 bend-point amounts by the ratio of the national average wage index for 2005 to that average for 1977. Then we round this amount to the nearest dollar. Multiplying the amounts of $230, $332, and $433 by the ratio of the national average wage index for 2005 ($36,952.94) to that for 1977 ($9,779.44) produces the amounts of $869.09, $1,254.51, and $1,636.15. We round these amounts to $869, $1,255, and $1,636. Accordingly, the portions of the primary insurance amounts to be used in 2007 are the first $869, the amount between $869 and $1,255, the amount between $1,255 and $1,636, and the amount over $1,636.

Consequently, for the family of a worker who becomes age 62 or dies in 2007 before age 62, we will compute the total amount of benefits payable to them so that it does not exceed

(a) 150 percent of the first $869 of the worker's primary insurance amount, plus (b) 272 percent of the worker's primary insurance amount over $869 through $1,255, plus

(c) 134 percent of the worker's primary insurance amount over $1,255 through $1,636, plus

(d) 175 percent of the worker's primary insurance amount over $1,636.

We then round this amount to the next lower multiple of $0.10 if it is not already a multiple of $0.10. This formula and the rounding adjustment described above are contained in section 203(a) of the Act (42 U.S.C. 403(a)).

Quarter of Coverage Amount

General

The amount of earnings required for a quarter of coverage in 2007 is $1,000. A quarter of coverage is the basic unit for determining whether a worker is insured under the Social Security program. For years before 1978, we generally credited an individual with a quarter of coverage for each quarter in which wages of $50 or more were paid, or with 4 quarters of coverage for every taxable year in which $400 or more of self-employment income was earned. Beginning in 1978, employers generally report wages on an annual basis instead of a quarterly basis. With the change to annual reporting, section 352(b) of the Social Security Amendments of 1977 amended section 213(d) of the Act to provide that a quarter of coverage would be credited for each $250 of an individual's total wages and self-employment income for calendar year 1978, up to a maximum of 4 quarters of coverage for the year. Computation

Under the prescribed formula, the quarter of coverage amount for 2007 shall be the larger of: (1) The 1978 amount of $250 multiplied by the ratio of the national average wage index for 2005 to that for 1976; or (2) the current amount of $970. Section 213(d) further provides that if the resulting amount is not a multiple of $10, it shall be rounded to the nearest multiple of $10.

Quarter of Coverage Amount

Multiplying the 1978 quarter of coverage amount ($250) by the ratio of the national average wage index for 2005 ($36,952.94) to that for 1976 ($9,226.48) produces the amount of $1,001.27. We then round this amount to $1,000. Because $1,000 exceeds the current amount of $970, the quarter of coverage amount is $1,000 for 2007.

"Old-Law" Contribution and Benefit Base

General

The "old-law" contribution and benefit base for 2007 is $72,600. This is the base that would have been effective under the Act without the enactment of the 1977 amendments.

The "old-law" contribution and benefit base is used by:

(a) The Railroad Retirement program to determine certain tax liabilities and tier II benefits payable under that program to supplement the tier I payments which correspond to basic Social Security benefits,

(b) the Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under the Employee Retirement Income Security Act (as stated in section 230(d) of the Social Security Act),

(c) Social Security to determine a year of coverage in computing the special minimum benefit, as described earlier, and

(d) Social Security to determine a year of coverage (acquired whenever earnings equal or exceed 25 percent of the "old-law" base for this purpose only) in computing benefits for persons who are also eligible to receive pensions based on employment not covered under section 210 of the Act.

Computation

The "old-law" contribution and benefit base shall be the larger of: (1) The 1994 "old-law" base ($45,000) multiplied by the ratio of the national average wage index for 2005 to that for 1992; or (2) the current "old-law" base ($69,900). If the resulting amount is not a multiple of $300, it shall be rounded to the nearest multiple of $300.

Amount

Multiplying the 1994 "old-law" contribution and benefit base amount ($45,000) by the ratio of the national average wage index for 2005 ($36,952.94) to that for 1992 ($22,935.42) produces the amount of $72,502.81. We round this amount to $72,600. Because $72,600 exceeds the current amount of $69,900, the "old-law" contribution and benefit base is $72,600 for 2007.

Substantial Gainful Activity Amounts

General

A finding of disability under titles II and XVI of the Act requires that a person, except for a title XVI disabled child, be unable to engage in substantial gainful activity (SGA). A person who is earning more than a certain monthly amount (net of impairment-related work expenses) is ordinarily considered to be engaging in SGA. The amount of monthly earnings considered as SGA depends on the nature of a person's disability. Section 223(d)(4)(A) of the Act specifies a higher SGA amount for statutorily blind individuals under title II while Federal regulations (20 CFR 404.1574 and 416.974) specify a lower SGA amount for non-blind individuals. Both SGA amounts increase in accordance with increases in the national average wage index.

Computation

The monthly SGA amount for statutorily blind individuals under title II for 2007 shall be the larger of: (1) Such amount for 1994 multiplied by the ratio of the national average wage index for 2005 to that for 1992; or (2) such amount for 2006. The monthly SGA amount for non-blind disabled individuals for 2007 shall be the larger of: (1) Such amount for 2000 multiplied by the ratio of the national average wage index for 2005 to that for 1998; or (2) such amount for 2006. In either case, if the resulting amount is not a multiple of $10, it shall be rounded to the nearest multiple of $10.

SGA Amount for Statutorily Blind Individuals

Multiplying the 1994 monthly SGA amount for statutorily blind individuals ($930) by the ratio of the national average wage index for 2005 ($36,952.94) to that for 1992 ($22,935.42) produces the amount of $1,498.39. We then round this amount to $1,500. Because $1,500 is larger than the current amount of $1,450, the monthly SGA amount for statutorily blind individuals is $1,500 for 2007.

SGA Amount for Non-Blind Disabled Individuals

Multiplying the 2000 monthly SGA amount for non-blind individuals ($700) by the ratio of the national average wage index for 2005 ($36,952.94) to that for 1998 ($28,861.44) produces the amount of $896.25. We then round this amount to $900. Because $900 is larger than the current amount of $860, the monthly SGA amount for non-blind disabled individuals is $900 for 2007.

Trial Work Period Earnings Threshold
General

During a trial work period, a beneficiary receiving Social Security disability benefits may test his or her ability to work and still be considered disabled. We do not consider services performed during the trial work period as showing that the disability has ended until services have been performed in at least 9 months (not necessarily consecutive) in a rolling 60-month period. In 2006, any month in which earnings exceed $620 is considered a month of services for an individual's trial work period. In 2007, this monthly amount increases to $640. Computation

The method used to determine the new amount is set forth in our regulations at 20 CFR 404.1592(b). Monthly earnings in 2007, used to determine whether a month

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