Just Right: SSI, ISM and "fair share"
If you remember the story, Goldil
ocks took a lot of time in the home of the three bears, finding the right fit for everything. One bed was too big, one was too small, but one was just right. One bowl of porridge was too hot, one was too cold, but one was just right. And so on. Some Social Security calculations have a “just right” quality about them as well.
Supplemental Security Income (SSI) is public aid. A person qualifies for SSI because he/she is elderly or has a disability and is poor in terms of both income and resources. Neither “income” nor “resources” are terms as straightforward as they may seem. Resources may be “countable”—that is, having the capacity to preclude or reduce eligibility for SSI--or not. Some large items that might seem like they should be countable, for instance a residence or a vehicle, are not. Generally speaking, cash or anything that can be converted readily into cash, such as stocks and bonds, are countable resources. Retirement accounts are countable resources even if the IRS does not agree that your disability exempts you from the 10% penalty for withdrawal before age 59-1/2.
The definition of “income” likewise has its peculiarities. There is unearned income, such as the return on investments or interest on a bank account (as minimal as that is, these days). Earned income is the gross amount that one receives as payment for working, but there may be amounts of earned income that are not considered to be such due to impairment-related work expenses (IRWE, that we discussed in a previous blog), employer subsidies (that we will discuss later) or other work incentives. And then, there is In-kind Support and Maintenance (ISM). ISM is basically the value of food or shelter that someone other than the SSI beneficiary pays for on behalf of the beneficiary. For example, if I’m on SSI and my parents pay a portion of my rent or my sister buys me groceries, that is all ISM, and its value reduces my SSI benefit. ISM can reduce my SSI benefit by a maximum of 1/3.
A person who has turned 18 years old is an adult for purposes of Social Security (and Medicaid). If a person age 18 or over still lives with his/her parents and does not pay for anything in the way of living expenses, then that person is receiving ISM; and instead of getting the full benefit (all-else equal) of $750/month, that person will only get $500/month, a 1/3 reduction. There are two work-arounds to this reduction. The person receiving SSI can pay “rent” or he/she can pay a “fair share” of the household expenses. Some parents, concerned about the impact of rental income on their tax situation, opt to go the “fair-share” route. However, there is an additional consideration. Social Security calculates “fair share” by adding up the following costs and dividing by the number of persons in the household. These costs include food, mortgage/rent, home insurance (if required by the mortgage), property tax, heating oil, gas, electricity, water and sewage/garbage removal. Renter’s insurance, phone and cable bills, for example, cannot be included in these costs.
Here is the twist. If the amount of calculated fair share is more than the maximum SSI payment, then even if the whole amount is paid over to the parents, the parents are still providing ISM for the amount that the beneficiary cannot cover and the SSI payment will be reduced. For this reason, it may make more sense to charge “rent”, and check with your tax professional about any consequences there. Social Security stipulates that the rent charged to the adult child with a disability must be the amount at which the room would be rented to a non-related party, but typically, they will accept any amount between about $400 and $600/month without much question.
Juggling ISM and "fair share" or rent is tricky. Just like Goldilocks, you will have to try out different approaches until you find the one that is just right for your situation.