Why You Should Charge Your Adult Child with Disabilities to Live with You

My sons are now 17 and a half and 14 and a half.  They spend a good amount of their recreational time online, so our electricity bill is sky-high from the demands of muti-player gaming platforms and from my sons’ predilection for refrigerating their rooms to 65 degrees year-round.  My older son favors 40-minute hot showers, and both of them take the path of least resistance by keeping their clothing perpetually in their laundry basket and washing and drying every piece of clothing they own on a weekly basis.  The gas company is gleeful.  I’m not, but at least both they and their clothes are clean.  Then there is the overall wear and tear they and their friends generate on the physical premises.  In other words, housing teenagers is expensive, whether or not they have disabilities.

Supplemental Security Income (SSI) is meant to be a safety net so that people who are retired seniors or have disabilities will have some type of roof over their heads and something to eat.  This understanding is behind the Social Security concept of “In Kind Support and Maintenance” with the obligatory abbreviation to “ISM”.  According to Social Security rules, if a person who receives SSI also lives in the home of someone else without paying for that shelter the person in whose home the SSI recipient lives is providing “in-kind income” in the form of free housing.  In the past, the value of food provided by a third party was also included, but that changed in September of 2024.  As with any income, this in-kind income reduces the amount of SSI payable.  Typically, the SSA applies an automatic one-third reduction, unless the SSI recipient can demonstrate that the actual value of their free shelter is less.  This means that most youth with disabilities, who receive SSI, only receive $644 per month, rather than $967 per month.

At the same time, youth with disabilities may have more expenses than their peers.  They may need therapies uncovered by insurance.  They may need personal support or care before or after school when their peers do not.  They may need a special diet or need special mobility or communication equipment.  Given these legitimate expenses, it is in the interest of the family supporting these youth to position them to be eligible for the full SSI payable.  The way to do this is for the family to enter into an agreement such that the young person pays for her/his shelter.  The Social Security administration permits this with several options for describing the payment:

·        Fair share.  To calculate an appropriate payment for the youth under the “fair share” model, the family adds up the household expenses for rent or mortgage, property taxes, heating fuel, gas, electricity, water, sewerage, and garbage collection service.  They then divide the total among all the number of people living in the household to arrive at a fair share figure.  There are a number of complications with this model.  First, the fair share amount will need to be recalculated every time one of the included expenses changes and every time a person joins or leaves the household.  This is impractical.  Second, if the fair share amount turns out to be more than that year’s maximum SSI payable, then the family is STILL presumed to be providing in-kind income, and the SSI payable is STILL reduced.

·        Rent.  In this case, the family assigns a monthly rental fee to the person for the room in which they are living and for access to the home’s common spaces.  The fee should be reasonable for the area in which the family lives.  Some families are concerned that receiving the rental payments will result in taxable income to the parents.  When documenting rental income for the IRS, the landlord documents the revenue and then documents all related expenses.  The net, rather than the topline revenue, would be the taxable income.  

·        Flat fee room and board.  With this model, the family charges the youth with a disability a flat monthly rate that covers both food and shelter and need not be recalculated based on fluctuating expenses or changes in the household composition.  The SSA designates flat-fee room and board as a type of rental liability for the SSI recipient.  Thus, similar to the above example, the parents/landlords would record the room and board payments as revenue but then subtract the associated expenses before arriving at any potentially taxable net income.

Charging and collecting money from adult child with a disability also serves another function.  Both SSI recipients and Medicaid users are limited as to the amount of financial assets they can accumulate in their own names.  By paying their parents for food and shelter, the adult children are transferring money from their own accounts, where it could potentially interfere with SSI and Medicaid eligibility, to their parents’ accounts where it will not affect their eligibility.

Teenagers and young adults generate significant expenses.  Those with disabilities often have exceptional expenses related to their conditions.  At the same time, youth with disabilities face more challenges for earning income than their neurotypical peers.  Thus, the family of a youth with disabilities will benefit financially from positioning that family member to receive the maximum SSI payable.

Disclaimer. This blog is not intended to provide tax advice.  When weighing the pros and cons of charging your adult child with disabilities, please consult with your tax professional to determine ay potential tax implications based on your particular circumstances.