I'm considering retiring at the end of this year (2016). I may qualify for a bonus based on work done in 2016. If so, the bonus will be paid in 2017. I will likely have to include the bonus payment made in 2017 in my income tax return for that year. Will Social Security count this income for the earnings test in 2017 even though it was earned in 2016?

Hi,

The month and year that Social Security counts a pay bonus as being earned depends on a number of factors (https://secure.ssa.gov/apps10/poms.nsf/lnx/0302505030), however, if you last perform services for your employer and retire in 2016, that's when your bonus would count for earnings test purposes. This is true even if it is paid in 2017.

The problem is that, if your bonus is paid in 2017, you will receive a 2017 W-2 for that payment. Social Security has no way of knowing the circumstances involved with that payment, so they will assume it was earned in 2017 unless you present them with evidence to the contrary. To have the bonus excluded for 2017 earnings test purposes, you will need to present documentation of your retirement date, and the fact that the bonus was paid for work performed in 2016, as soon as possible after you receive the W-2 form for 2017. Obviously, this will only be necessary if you receive reduced Social Security benefits in 2017.

Best, Jerry