203 (d) or (e) of the act on account of the event which such individual failed to report, except that the amount of the first additional deduction imposed against any individual shall not exceed an amount equal to one month's benefit even though the failure to report is with respect to more than one month. [Third paragraph amended by Reg. 3, Jan. 13, 1947, approved Jan. 24, 1947, 12 F.R. 617] Example: H is entitled to receive a primary insurance benefit of $25 for each month, and W, his wife, is entitled to a wife's, insurance benefit of $12.50. H renders services for. wages of not less than $15 in each of 2 months. If either H or W reported this fact to the Administration, within the time stated in this section, the deduction from H's benefits would be $50, and the deduction from W's benefits would be $25. If neither H nor W reported to the Administration as required, the deduction would be $100 from his benefit and $50 from W's benefits. however, A were receiving the benefits on behalf of either H or W and reported to the Administration, neither H nor W would suffer the additional deduction for failure to report.

If,

[Preceding example, in small type, superseded by following example, also in small type, during period covered by this Supplement]

Example: H is entitled to receive a primary insurance benefit of $25 for each month and W, his wife, is entitled to a wife's insurance benefit of $12.50. H renders services for wages of not less than $15 in each of 2 months. If either H or W or any person in receipt of benefits on their behalf reported this fact to the Administration, within the time stated in this section, the deduction from H's benefits would be $50, and the deduction from W's benefits would be $25. No additional deduction would be imposed against either.

If neither H nor W nor any person in receipt of benefits on their behalf reported to the Administration as required, and an additional deduction had previously been imposed against them for a prior failure to report, the deduction would be $100 from his benefits and $50 from W's benefits.

If no additional deduction had previously been imposed against H or W, the deduction as to H would be $75 and as to W would be $87.50.

If an additional deduction had previously been imposed against H but not against W, the deduction as to H would be $100 and as to W would be $37.50.

[Example amended, by Reg. 3, Jan. 13, 1947, approved Jan. 24, 1947, 12 F.R. 6171

SECTION 203 (h) OF THE ACT

Deductions shall also be made from any primary insurance benefit to which an individual is entitled, or from any other insur

ance benefit payable with respect to such individual's wages, until such deductions total the amount of any lump sum paid to such individual under section 204 of the Social Security Act in force prior to the date of enactment of the Social Security Act Amendments of 1939.

SECTION 4 (c) OF THE ACT OF August 13, 1940 (54 STAT. 786)

Nothing contained in this act shall operate (1) to affect any annuity, pension, or death benefit granted under the Railroad Retirement Act of 1935 or the Railroad Retirement Act of 1937, prior to the date of enactment of this act, or (2) to include any of the services on the basis of which any such annuity or pension was granted, as employment within the meaning of section 210 (b) of the Social Security Act or section 209 (b) of such act, as amended. In any case in which a death benefit alone has been granted, the amount of such death benefit attributable to services, coverage of which is affected by this act, shall be deemed to have been paid to the deceased under section 204 of the Social Security Act in effect prior to January 1, 1940, and deductions shall be made from any insurance benefit or benefits payable under the Social Security Act as amended, with respect to wages paid to an individual for such services until such deductions total the amount of such death benefit attributable to such services.

SECTION 907 OF THE SOCIAL SECURITY ACT AMENDMENTS OF 1939

In addition to any other deductions made under section 203 of the Social Security Act, as amended, deductions shall be made from any primary insurance benefit or benefits to which an individual is entitled or from any other insurance benefit payable with respect to such individual's wages, until such deductions total 1 per centum of any wages paid him for services performed in 1939, and subsequent to his attaining age sixty-five, and 1 per centum of any wages paid him for services which constitute employment by virtue of subsection (o) of section 209 of the Social Security Act, as amended, with respect to which the taxes imposed by section 1400 of the Internal Revenue Code have not been deducted by his employer from his wages or paid by such employer. (As retroactively amended by section 1 (b) (3) of the act of March 24, 1943, 57 Stat. 47.)

§ 403.505 Deductions because of lumpsum payments under original act and failure to pay taxes-(a) Basis for, and amount of, deduction under section 203 (h) of the act. Section 203 (h) of the act provides for deductions from benefits, and from lump-sum death payments under section 202 (g) of the act, where a wage earner has been paid a lump sum (hereinafter referred to as a section 204 payment) under section 204 of the Social

Security Act in force prior to August 10, 1939 (the date of enactment of the Social Security Act Amendments of 1939). The total to be deducted is an amount equal to the amount of the section 204 payment.

In any case in which a death benefit alone has been granted under the Railroad Retirement Act of 1935 or the Railroad Retirement Act of 1937, upon the basis of services in the physical operations consisting of the mining of coal, the preparation of coal, the handling (other than movement by rail with standard rail locomotives) of coal not beyond the tipple, or the loading of coal at the tipple, the amount of such benefit attributable to such services shall be deemed to have been paid to the deceased as a section 204 payment, and deductions shall be made in accordance with § 403.505 (c) from any insurance benefit or benefits payable under title II of the act with respect to wages paid to an individual for such services until such deductions total the amount of such death benefit attributable to such services.

(b) Basis for, and amount of, deduction under section 907 of the Social Security Act Amendments of 1939. Section

907 of the Social Security Act Amendments of 1939 provides for deductions from benefits and lump-sum death payments in cases where the taxes imposed by section 1400 of the Internal Revenue Code with respect to a wage earner's employment in 1939 and subsequent to his attaining age 65, or with respect to services which constitute employment by virtue of section 209 (o) of the act, as amended (see § 403.803 (d)), have neither been deducted by his employer from the wages paid him for services in such employment nor paid by such employer. The total amount to be deducted is an amount equal to 1 per centum of such wages with respect to which taxes have neither been deducted nor paid by the employer.

Example: H, aged 66, was paid wages of $3,000 in the first 3 months of 1939. His employer did not deduct from his wages the taxes imposed by section 1400 of the Internal Revenue Code and did not pay the amount of such taxes to the Bureau of Internal Revenue. A deduction equal to per centum of $3,000, or $30, is required under paragraph (b) of this section. (The same amount would have to be thus deducted if H had been paid such wages in 1942 with respect to services which constituted employment by virtue of section 209 (0) as later added to the act.) Therefore,

in either case, if H later becomes entitled to a primary insurance benefit of 842 for each month, $30 will be withheld from his benefit for 1 month, so that he will receive $12 for such month. No deduction would have been made from benefits if H's employer had paid the tax himself (even though he did not deduct it from H's wages), or if the employer had deducted the tax (even though he did not pay it to the Bureau of Internal Revenue). If H had been paid a section 204 payment, the amount of such payment would also have to be withheld from his benefits, under paragraph (a) of this section.

A

(c) Manner of making deductions. deduction under paragraph (a) or (b) of this section, as the case may be, is made by withholding the amount designated in such paragraph from (1) any primary insurance benefits to which the wage earner who is described under such paragraph is or becomes entitled and (2) any benefits or lump sum to which any other person is or becomes entitled with respect to the wages of such wage earner. Upon determination that a deduction is required, no such benefit for any month and no such lump sum will be paid until a total amount equal to the amount to be deducted has been withheld. If the amount of the required deduction is less than the total of (1) any such benefit or benefits for a month and (2) any such lump sum then payable, the amount to be deducted will be withheld from such total.

If more than one person is entitled to any such benefits, or to any such lump sum, the deduction is made from the benefits, or from the share of the lump sum, to which each such person is entitled, in the proportion that his benefit or benefits for a month, or his share of the lump sum, bears to the total of such benefits for a month, or the total of such lump sum.

Example 1: H received a section 204 payment of $150. Thereafter he became entitled to a primary insurance benefit of $30 for each month. His wife, W, at the same time, became entitled to a wife's insurance benefit of $15, but since she was also entitled to a primary insurance benefit of $10 on the basis of her own wages, her wife's insurance benefit was reduced to $5 for each month, under section 202 (b) of the act. (See $403.403 (c).)

A deduction of $150, the amount of the section 204 payment, is required under paragraph (a) of this section. In order to effect the deduction, the primary insurance benefit of $30 and the wife's insurance benefit of $5 are withheld in their entirety for 4 months. In the fifth month, there being a balance of

January 1, 1940. The provisions for adjustments also apply in cases where, through error, a reduction or increase required under section 203 (a) or (b) of the act, or a reduction under section 202 (h) of the act, as amended, or a deduction under section 203 (d), (e), or (h) of the act or under section 907 of the Social Security Act Amendments of 1939, is not made, and where such a reduction, increase, or deduction is made which is either larger or smaller than required (see §§ 403.502 to 403.505, inclusive). The term "overpayment," as used herein, includes a payment where nothing was payable under Title II of the act. The term "underpayment," as used herein, includes nonpayment where some amount was payable under that title. [Introductory text amended Jan. 13, 1947, approved Jan. 24, 1947, 12 F.R. 618]

(a) Overpayments. Upon determination that an overpayment has been made, adjustments will be made against benefits and lump sums as follows:

(1) If the person to whom an overpayment was made is, at the time of the discovery of such overpayment, entitled to benefits or to a lump sum, or at any time thereafter becomes so entitled, no benefit for any month and no lump sum will be paid to such person until a total amount equal to the amount of the overpayment has been withheld. If the amount of any overpayment with respect to which adjustment has not been made is less than the total of (i) any such benefit or benefits for a month and (ii) any such lump sum then payable, the amount of such unadjusted overpayment will be withheld from such total.

Example 1: A is entitled to a primary insurance benefit of $30 a month. He has received checks of $40 a month for 5 months, making a total overpayment of $50. No benefits will be payable to A for 1 month following the discovery of the overpayment, and the benefit for the next month will be decreased to $10. If before such overpayment has been completely adjusted, A should become entitled to a lump sum on the basis of the wages of B, such lump sum would also be withheld in whole or in part, depending upon the amount remaining to be adjusted.

Such adjustments will be made against any benefits or lump sum to which such person is or may become entitled regardless of whether such benefits or lump sum are based on his wages or the wages of another individual.

Example 2: C is entitled to a child's insurance benefit of $10 based on the wages of X. C has received checks of $20 per month for 4 months, making a total overpayment of $40. No benefits will be payable to C for 4 months following the discovery of the overpayment. If, however, after benefits have been withheld for 2 months, C becomes entitled to a child's insurance benefit of $20 based on the wages of Y, the child's insurance benefit based on the wages of Y would be withheld for 1 month, and the required adjustment of $40 would thereby be completed.

(2) If an individual to whom an overpayment was made dies before adjustment is completed under subparagraph (1) of this paragraph, adjustment will be made, in the manner provided under subparagraph (1) of this paragraph, against any benefits or any lump sum payable with respect to the wages which were the basis of payments to such deceased individual prior to his death. Where more than one person is entitled to benefits or to a lump sum with respect to such wages, adjustment will be made against the amount payable to each of such persons in the proportion that his benefit or benefits for a month or his share of the lump sum, based on such wages, bears to the total of such benefits payable for a month or the total of such lump sum.

Example: H was entitled to a primary insurance benefit of $20. He received checks of $30 per month until his death, when the total amount of overpayment to him was $90. H left surviving a widow, W, entitled to a widow's insurance benefit of $15 a month, and a child, C, entitled to a child's insurance benefit of $10 a month. Both the widow's insurance benefit and the child's insurance benefit will be withheld in their entirety for 3 months, thereby effecting an adjustment of $75. For the remaining $15 of the adjustment, an amount equal to 1525 of $15, or $9, will be withheld from W's benefit of $15, and an amount equal to 1025 of $15, or $6, will be withheld from C's benefit of $10. Thus the amount of W's benefit paid for the fourth month will be $6, and the amount of C's benefit paid for such month will be $4. Thereafter they will receive their regular insurance benefits for each month without the decrease.

If, before the adjustment had been completed, W became entitled to receive a primary insurance benefit on the basis of her own wages, such primary insurance benefit would not be withheld, since benefits based on W's wages are not subject to adjustment on account of the overpayment to H.

(b) Underpayments. Underpayments will be adjusted as follows:

(1) If a person to whom an underpayment was made is living, the amount of such underpayment will be paid to such person either in a single payment (if he is not entitled to a benefit or lump sum) or by increasing one or more benefits or lump sum to which such person is or becomes entitled.

(2) If an individual to whom an underpayment was made dies before adjustment is completed under subparagraph (1) of this paragraph, the amount of such underpayment will be paid to any persons entitled to benefits or to a lump sum with respect to the wages which were the basis of payments to such deceased individual prior to his death, except as provided in subparagraph (3) of this paragraph. Where more than one person is entitled to benefits or a lump sum with respect to such wages and adjustment is required hereunder, the amount of the underpayment will be divided among such persons in the proportion that their respective benefits for a month or their share of the lump sum, based on such wages, bear to the total of such benefits payable for a month or the total of such lump sum.

Example: H, who had been entitled to a primary insurance benefit of $40 a month, died after receiving checks of $20 a month for 5 months. At the time of his death the underpayment amounted to $100. He left surviving W, a widow, entitled to a widow's insurance benefit of $30, and C, a child's insurance benefit of $20. The underpayment of $100 will be adjusted by a proportionate increase of the widow's insurance benefit and the child's insurance benefit. Ordinarily, the total amount would be adjusted in 1 month, so that W's benefit for 1 month will be increased by 3% of 8100 ($60) and C's benefit for 1 month will be increased by 2050 of $100 ($40).

(3) No amount will be paid under the provisions of subparagraph (2) of this paragraph to a person to whom a lump sum is payable as one equitably entitled within the meaning of § 403.408 (b) (2), in excess of the amount of burial expenses of the deceased individual paid by such person.

(c) Relation to provisions for reductions and increases. The amount of an overpayment or underpayment of a benefit is the difference between the amount paid to the beneficiary and the amount of such benefit as reduced or increased (if required) under section 203 (a) or (b) of the act (see § 403.502). Likewise, in effecting an adjustment with respect to an overpayment, no amount can be considered as having been withheld from a particular benefit, which is

in excess of the amount of such benefit as so decreased.

(c) Relation to provisions for reductions and increases. The amount of an overpayment or underpayment of a benefit is the difference between the amount paid to the beneficiary and the amount of such benefit as reduced or increased (if required) under section 203 (a) or (b) of the act or as reduced under section 202 (h) of the act, as amended (see § 403.502). Likewise, in effecting an adjustment with respect to an overpayment, no amount can be considered as having been withheld from a particular benefit, which is in excess of the amount of such benefit as so decreased. [Paragraph (c) amended Jan. 13, 1947, approved Jan. 24, 1947, 12 F.R. 618]

Example: H was entitled to a primary insurance benefit of $20. He had been receiving checks of $30, and at the time of his death the total amount of the overpayment to him was $80. H left surviving a widow, entitled to a widow's current insurance benefit of $15, and three children each entitled to a child's insurance benefit of $10. The total of these benefits ($45) must be reduced pursuant to section 203 (a) of the act to $40 (twice the primary insurance benefit). Thus the widow would be entitled to receive $13.33, and each of the children would be entitled to receive $8.89.

In order to effect the required adjustment against the benefits of the widow and the children, such benefits are withheld in their entirety for 2 months, thus completing the required adjustment of $80. The amount withheld each month is the amount of such benefits as reduced pursuant to section 203 (a) of the act, 1. e., $40, not $45.

If an overpayment were made to the widow (or to a child), the amount of the overpayment would be the difference between the amount actually paid and the amount of the benefit of the widow (for the child) as reduced under section 203 (a) of the act.

(d) Relation to other provisions. Adjustments under this section are made in addition to any deductions which may be required under section 203 of the act or under section 907 of the Social Security Act Amendments of 1939. (See §§ 403.503 to 403.505.)

Example: A is entitled to receive a primary insurance benefit of $10 but had been receiving checks of $15. At the time of the discovery of the error the total overpayment amounts to $10. Thereafter adjustment of the overpayment is begun by withholding benefits. If A should earn wages of $15 or more for 2 months, the number of months for which benefits will be withheld is 3; 1. e., 1 month for the overpayment and 2 months because of the deduction pursuant to section 203 (d) of the act.