PERAC Memo #64 - 1998: Definition of Earned Income for G.L. c. 32, § 91A

Definition of Earned Income for G.L. c. 32, § 91A

Summary

PERAC Memo #64/1998 clarifies that "earned income" under G.L. c. 32, §91A—used to determine whether a disability retiree is over-earning—is not statutorily defined but is interpreted by PERAC to include profits from operating a business through the retiree's own labor, management, or supervision, regardless of how such income is characterized for tax purposes (e.g., as dividends). Boards should apply this substance-over-form standard when evaluating disability retirees' earnings for §91A compliance, rather than relying solely on the retiree's tax classification of income. No further action beyond this clarified interpretation is required.

Full Text

PERAC MEMO #64/1998 M E M O R A N D U M TO: All Retirement Boards FROM: Robert F. Stalnaker, Executive Director RE: Definition of Earned Income for G.L. c. 32, § 91A DATE: December 30, 1998 We have received inquiries as to the definition of the term “earned income” as it is used in G.L. c. 32, § 91A. This definition is to be used in determining whether a disability retiree is over-earning pursuant to that section. EARNED INCOME The term “earned income,” as used in G.L. c. 32, § 91A, is not defined in G.L. c. 32. Black’s Law Dictionary, Revised Fourth Edition, defines earned income as “ imply[ ing] some labor, management or supervision in production thereof, not income derived from ownership of property.” It is the Commission’s position that, for the purposes of G.L. c. 32, if an individual operates a business for profit, individually or through an agent, that individual does not have the option of classifying such income as dividends as opposed to wages. Profits derived from the operation of a business through some labor , management or supervision of production of such profits are earned income, regardless of how a retiree categorized such income for income tax or other purposes. We trust the foregoing is of assistance. If you have further questions or concerns, please contact this office.