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Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I retired from my company on December 31, 2004. I sold non

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I retired from my company on December 31, 2004. I sold non qualified stock options in spring of 2005. I also received some back dated vacation and bonus payments. Social security is saying with the stock options and other back dated payments that I earned above the earnings limit for 2005 and are telling me I have to pay back a certain amount. I though stock options were exempt from the earnings test for social securty. form SSA-131 was filled out by my company saying that stock option was a special wage payment.

Any help would be appreciated.
Submitted: 7 years ago.
Category: Tax
Expert:  Anne replied 7 years ago.
HiCustomerbr />
Thank you for using justanswer. A nonstatutory stock option that is excercised in one year but earned in a previous year is normally not counted for the social security earnings test. However, if when you excercise your option you are already collecting social security and still working, then under those conditions, the income counts towards your earnings test. Please see below:

Publication 957 (01/2009), Reporting Back Pay and Special Wage Payments to the Social ...

I hope this helps.

Customer: replied 7 years ago.



As I said, I stopped working for my Company Zimmer Inc. on december 31, 2004. I remained working as a Temp worker for Kelly services. I earned 10,787 dollars under them. I was paid 5,794 dollars from Zimmer Inc, which was accrued vacation and some insurance, it was pay earned in 2004 and payed in 2005. I sold 35,000 in stock options which were granted in 2003 and exercised in 2005. every thing I have read says that stock option are considered special payment and not subject to earnings test. If you go to page 8 of publication 957 and read the section Reporting Nonstatutory Stock options as special wage payments, it states that they are not to be used as earnings test for social security.

Expert:  Anne replied 7 years ago.
I understand what you're saying. The only exception I noted was if you were collecting social security and still working (anywhere) when you exercised the options. At that point, because of already collecting social security when the options were exercised, they are now to be reported on the SSA-131 form.

There are of course always differing opinions when it comes to tax law. If you feel that there was an error in reporting the exercising of your stock options, you should absolutely talk to the folks at Social Security, because you may just be correct. Social Security will of course, make the final decision here, and if you appeal , I'd truly like to know how this comes out.
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