This time of year, I work with a lot of clients on their taxes. The economic results of both the pandemic and the relief packages meant to provide relief during the pandemic have resulted in a lot of uncertainty for many taxpayers, particularly those who lost jobs, changed jobs, received unemployment or payroll protection loans or incurred additional expenses from moving their lives online. The one-month extension of the tax deadline provides only a modest reprieve. Perhaps even more than any other year, taxpayers want to know, concretely and definitely how big their refund or the amount they owe will be. In an analogous way, people who receive disability benefits and also work—particularly if they are just starting to work—want to know concretely and definitely what they impact of their work will be on the size of the monthly disability benefits they receive. In this blog, we will discuss the impact of work on Supplemental Security Income (SSI) from the perspective of a young person who is in transition from begin a student who has a part-time or work-study job to more extensive participation in the work force.
The first thing I stress to my young clients and students is the absolute necessity to provide the Social Security Administration (SSA) with paystubs on a timely, monthly basis. Generally, the worker should submit the paystubs receive in the previous month within the first week of the following month. For Social Security disability purposes, income is considered earned on the date it is paid to the worker. There are a number of ways that the worker can submit her/his earnings information. There is an SSI mobile wage reporting app in the Google Play and Apple app stores. As with all technology, the app requires regular updates. The worker can also report via a telephone system, the more old-fashioned way of faxing the stubs to the local office or the thoroughly antiquated, but very reliable way of sending them through the post with a return receipt or other method of tracking. It is crucial that the worker keep evidence that the stubs have been submitted. (photo courtesy of Recha Octaviani via Unsplash).
As full-time students below the age of 22, young people receive preferential treatment when it comes to calculating the impact of their work earnings on their SSI payments. “Full time” is defined as at 7-12th graders being in school at least 12 hours per week and college students being in the classroom at least 8 hours per week. Students participating in job-readiness or job skills training through a vocational school or and anti-poverty program such as Job Corps qualify as full-time students if they are involved at least 15 hours per week for courses that include shop time or 12 hours for those that do not. There can be exceptions to the hourly requirements if the student is unable to fulfill them due to circumstances the student cannot control such as lack of transportation or the school’s inability to support the student for the required number of hours. Online attendance can also qualify if the school is authorized, accredited or otherwise a part of the general school system for the respective age level. The student earned income exclusion amounts to a very generous—by Social Security standards-- $1,930/month up to a total of $7,770 for the full year. For every month that the student’s gross income is less than the threshold, s/he will receive the entire SSI benefit without any reduction. Once they reach the annual threshold, the reduction would come into play for the remainder of the year.
It is important that students and their parents understand that the preferential treatment will cease once the young person ceases to be a full-time student or turns 22. Some students who emerge from school with steady or even increasing work hours are dismayed to find their SSI payments abruptly reduced. The regular earned income exclusion is calculated according to a formula. The first $65/month or $85/month for those who have no unearned income, such as rental or investment income, is not countable. Then, half of the remainder is not countable. What is left reduces the recipient’s SSI benefits dollar for dollar. For example, Kate earns $385 this month. She has no unearned income, so her initial earned income exclusion is $85. Of the remaining $300, half, or $150 is countable for reducing her SSI. Assuming that Kate would otherwise receive the maximum SSI payment of $794, she receives $644 after the reduction formula has been applied. Or take Joe. Joe was recently given additional hours that pushed his monthly earnings up from $1,200 to $1,300/month. Joe has no unearned income, so his earned income exclusion is $85. After that, of the remaining $1,215, half, or $608 serves to reduce his SSI. So, Joe still receives $186/month of SSI.
The impact of the reduction formula can be a little opaque because it typically takes the Social Security Administration two to three months to make the adjustment. For people whose hours and income varies on a monthly basis, this means that the SSA is always playing catch up and the SSI beneficiary is in a constant state of over- or under- payment. For this reason, I strongly recommend that, in addition to submitting one’s paystubs to the SSA monthly and keeping a copy, the SSI beneficiary also keep and excel spreadsheet tracking whether s/he has been under- or over-paid for a given month and by how much.
Taxes are a once-a-year headache for most of us. Managing disability benefits while working is a month-to-month responsibility. The IRS has the tax codes and various rulings. The SSA has its Programs Operation Manual System (POMS). Both would probably challenge in length the multi-volume printed encyclopedias that some of us grew up with. Both are packed with details and threads that wind from one entry to another to another. Non-compliance with either can have serious repercussions. The good news is that there are answers within each system to every question and experienced professionals to help you find them.