Which Income Passes the "Duck Test"?

Elements of government programs frequently confound the "duck test." Generally, if it looks like a duck, walks like a duck, and swims like a duck, then it should BE a duck. If only it were that simple.

Some disability-related benefits, notably Supplemental Security Income (SSI) and Medicaid require the recipient to not only have a disability, but to also remain poor in terms of both income and assets. As for all disability benefits, the recipient has to qualify by having less than $1,180/month in gross-earned income in order to demonstrate that s/he is not performing Substantial Gainful Activity (SGA). Even below that threshold, any income you do have will reduce your SSI benefit—dollar for dollar for unearned income and 50 cents on the dollar for earned income.

You might think "income" is self-defined. It's money coming in, right? Yes, wages or salary as well as passive income such as interest or rent received all "count" as income. But some does not. For starters, the first $20 of any unearned income does not count. Then, the first $65 of any earned income does not count (if you have no unearned income, then the first $85 of earned income does not count). Fifty percent of your remaining earnings do not count. If you are a full-time student under the age of 22, your first $1,820 per month does not count, up to an annual exclusion of $7,350 (2018).

Income spent on approved Impairment Related Work Expenses (IRWE) does not count as income either, and we discussed IRWE in a past blog. IRWE is not only excluded when figuring your SSI payment, it is also excluded when considering whether you are performing SGA. Non-SSI income contributed to a Plan to Achieve Self-Support (PASS) also does not count as income. We will discuss PASS in an upcoming blog. Income tax refunds do not count as income, even though that money was income to you before it went to the IRS and back. Scholarships and grants used for tuition also do not count. For a full list of what the Social Security Administration does not count as income when determining the SSI payment for a person with a disability, please look here: https://www.ssa.gov/ssi/text-income-ussi.htm.

On the other hand, some things that you might not expect to be income actually count as such. Alimony is income to a divorced person with a disability. Child support paid to the parent of a child, youth or adult child with a disability is income to the child. A portion of income earned by the parents of a child under 18 with a disability is deemed income to the child too. Income is also deemed from the spouse without a disability to the spouse with one. The value of food and shelter, paid for by the parents or indeed by anyone, and for the use of a person over 18 with a disability is In-Kind Support and Maintenance (ISM), and thus is also income. However, the value of non-food/shelter items purchased for the person with a disability is not ISM and thus is not income.

Cash distributions to the beneficiary from a Special Needs Trust are income as well. If the Special Needs Trust pays for food and shelter, that is ISM, and thus is also income. However, if the trust pays for non-food/shelter items, then that is not income to the beneficiary. Contributions to an ABLE account by someone other than the owner are not income. If you deposit some of your earnings into your ABLE account, then the earnings are still income when you receive them; but making the contribution does not double-count them. Distributions from an ABLE account are not income or ISM regardless of what the distributions purchase, although there may be tax consequences for distributions that are not used for Qualified Disability Expenses (QDE). We will discuss ABLE accounts in a later blog.

Perhaps in this era of increasingly realistic computer-generated imagery, it is no longer surprising that something that looks, walks and swims like a duck might not necessarily be a duck. When reporting your income to Social Security, though, consider carefully whether each component passes or fails Social Security's very particular “duck tests”.

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