Social Security and Work Incentives

This chapter discusses PASS plans, Impairment-Related Work Expenses (IRWEs), and Subsidies. Although these could be the topics of daylong (or longer) workshops, our goal here is just to provide a basic description of how work incentives apply to self-employment.

Acronyms and abbreviations used in this chapter:

• BWE - Blind Work Expense
• DAC - Disabled Adult Child
• EPE - Extended Period of Eligibility
• FBR - Federal Benefit Rate
• IRWE - Impairment Related Work Expense
• PASS - Plan for Achieving Self-Support
• SGA - Substantial Gainful Activity
• SSDI - Social Security Disability Insurance
• SSI - Supplemental Security Income
• Title II - Legislation Outlining Social Security Disability Insurance and Social Security for Disabled Adult Children
• Title XVI - Legislation Outlining Supplemental Security Income
• TWP - Trial Work Period

A Social Security Perspective on Work Incentives

The Social Security Administration understands that people with disabilities often see disability programs as barriers to employment. Even with programs and provisions such as the Trial Work Period, Employment Subsidy, extended Medicaid coverage, IRWE, and Plans for Achieving Self-Support, very few beneficiaries leave the benefit rolls and return to work.

In 1994, the Social Security Administration began a concerted effort to increase employment of current and future SSA disability beneficiaries, to increase their self-sufficiency and reduce dependency on the benefit rolls. As a result of meetings and focus groups with other Federal agencies, people with disabilities, and members of the community, SSA instituted policy changes and education concerning employment of people with disabilities.

SSA addressed barriers to employment, such as: 

• The perceived security of regular monthly checks versus the insecurity of lost benefits; 
• Lost medical coverage; 
• Periodically-unstable employment markets; 
• Young enrollees with few or non-existent employment skills; 
• Complex benefit program rules, regulations and practices that are difficult to understand.

In developing a strategy to encourage employment, SSA assumed that: 

• Many people with disabilities can and want to work. 
• SSA can help people with disabilities begin or return to work.
• When supports are in place, beneficiaries can work despite barriers.

Social Security Work Incentive Programs (including PASS) promote employment and independence for people entering or re-entering the workforce. Both Title II (SSDI) and Title XVI (SSI) have work incentive programs that allow people to work without the fear of losing their benefits. 

Title II Work Incentive Programs include:

• Trial Work Period (TWP), which allows people to try work without losing medical and financial benefits; and
• Extended Period of Eligibility (EPE), for beneficiaries who remain medically disabled and may need extended Medicare coverage or purchase of Medicare following return to work, and reinstatement if earnings fall below SGA.

Title XVI Work Incentives include:

• Ongoing Medicaid benefits when a person’s income precludes SSI benefit checks (1619 (a) & (b));
• IRWE, an incentive enabling a person to recover impairment related expenses incurred while working toward economic self-sufficiency; and
• PASS, also an incentive enabling a person to recover expenses incurred while working toward economic self-sufficiency.

Social Security Benefit Programs

These programs include Title II Social Security Disability Insurance (SSDI), Title XVI Supplemental Security Income (SSI), Impairment Related Work Expenses (IRWE), and programs for people with blindness. Each is discussed on the following pages. 

Title II - Social Security Disability Insurance (SSDI) - To be eligible for Title II, an individual must have worked long enough to achieve insured status. Insured status for benefits requires that an individual worked and paid Social Security taxes for 20 quarters in the 10 years prior to the onset of disability. A person disabled before age 31 needs less work time to qualify. To be eligible for SSDI benefits, an individual must:

• Be determined medically disabled;
• Be unemployed or earning under SGA (in 2004, defined as $810 or $1530 if blind), and;
• Have insured status as a former worker.

An adult with a disability who does not have enough work quarters to qualify for insured status may receive Title II benefits based upon a parent’s insured status. This is called Social Security for Disabled Adult Children (SSDAC). To be eligible for SSDAC benefits a person must be:

• 18 years of age or older;
• Totally and permanently disabled before age 22;
• A dependent of an insured worker who is either disabled, retired or deceased; and
• Not married.

SSA Title II Medicare provides medical services to Title II beneficiaries, but there is a waiting period for each. Cash benefits begin five months after the month of the onset of the disability. Medicare coverage does not start until 24 months after disability cash benefits begin.

For a PASS, Title II benefits are viewed as unearned income. In many cases, SSDAC or SSDI benefit amounts are below the Federal Benefit Rate of $564 in 2004. As a result, recipients of SSDAC or SSDI very often receive checks from both Title II and Title XVI to reach the 2004 $564 Federal Benefit Rate.

Example:

Title XVI - Supplemental Security Income (SSI) - SSI is an economic need-based program that supplements a person’s income to ensure that he or she has a minimum level of income. SSI-eligible individuals must meet the income and resource test and belong to one of the following categories:

• Disabled (Disability Determination Services determination);
• Blind: 20/200 or less in the better eye with correction, or field of vision less than 20 degrees, or;
• Aged 65 or older

Each January, Congress establishes the FBR, which is the maximum monthly SSI benefit an individual or couple can receive. The FBR for 2004 is $564. The monthly amount is affected by the following factors:

• Living arrangement and in-kind support;
• Unearned income (Title II benefits, VA, deemed income from a non-disabled spouse, etc.);
• Use of Work Incentives such as IRWE and PASS, and;
• Earned income (wages from work).

Income and Resource Test

The SSI benefit program has resource limits on real or personal property and cash that are set by statute. At the beginning of each month, resources must not exceed a specified amount–currently $2,000 for individuals and $3,000 for couples. Limits do NOT apply to: the person’s dwelling and its site; household goods and personal property not exceeding $2,000 in value; burial spaces for the person and his or her immediate family; burial funds for the person and his or her spouse valued at $1,500 or less or irrevocably set aside; life insurance policies with a combined face value of $1,500 or less per person; retroactive Title XVI or Title II checks received within the first six months; resources for an approved PASS; property in a trust that is inaccessible to the SSI recipient; crime victim aid to the recipient (or spouse); one automobile if necessary for work, medical treatment, modified, or necessary due to climate, terrain, distance, or similar factors to perform essential daily activities.

This formula sequence determines the amount of an SSI payment: 

1. Monthly Gross Earned Income - $20 (General Exclusion) - $65 (Earned Income Exclusion) = Difference
   
   
2. Difference divided by 2 = Total Countable Earned Income
   
   
3. $564 (FBR) - Total Countable Earned Income = SSI Cash Benefit
   

Monthly earnings of $635 reduce the SSI Cash Benefit to $289. The individual receives an SSI check for $289. However, the $275 Total Countable Earned Income is available for use in a PASS plan. 

Title XVI PASS Rule
The amount of reduction of the SSI check due to earned or unearned income (after deducting the $20 General Exclusion from either the earned or unearned income) is the amount that can be used to fund goods and services in a person’s PASS. The person with no source of income or resources other than Supplemental Security Income (e.g., Title XVI recipient), must be working in order to have a PASS.

In-Kind Support
A person living in someone else’s home without paying for food or shelter is the recipient of full in-kind support. This person will have his or her SSI check reduced by one-third the FBR amount. In 2004 this benefit amount is $376 ($564 - $188). 

PASS Requirements
Anyone may help develop a PASS, (e.g., vocational counselors, social workers, case managers, employment specialists, or employers). SSA especially encourages VR counselor involvement because it indicates oversight and blends public resources.

The PASS Must:

• Be designed specifically for an individual
• Be in writing
• Have a specific work goal that the person is presumed capable of performing
• Specify a time frame for reaching the goal
• Show sources of money and other resources that will be used to reach the goal
• Show how money and resources will be used
• Show how set-aside money will be kept identifiable from other funds
• Be approved by the SSA
• Be reviewed periodically to assure compliance

The PASS Cannot:

• Pay for current expenses (e.g., expenses that the PASS recipient was paying prior to the PASS plan)
• Pay expenses to assist an individual retain his or her current employment (e.g., job coaching)

Learn about recipient's responsibilities.

These examples describe situations where a PASS plan might be appropriate:

• Richard has resources that are in excess of allowable limits, has no earned or unearned income, and has not qualified for SSI in the past because his resources exceed the resource limit (generally defined as over $2,000 in non-excluded resources). Richard can establish a PASS that sets aside his excess resources and allows him to qualify for SSI benefits.
  
• Sue has only unearned income from her father’s railroad pension. Like other people with unearned income only (SSDI, SSDAC, railroad pension checks, parental subsidies/gifts, etc.), Sue can establish a PASS that applies all or part of her unearned income towards PASS expenses so she can qualify for SSI benefits. 
  
• Liz has only the income she has earned from working. She can develop a PASS plan that sets aside all or a portion of her Total Countable Earned Income. 
  
• Mark has both income earned from working AND unearned income. He can use all or part of his earned income, all or part of his unearned income, or some of each to establish a PASS plan. He can then qualify for SSI benefits. 
  
• Charlene expects to earn a salary in the future, but right now she is receiving SSI and Medicaid benefits. She can establish a PASS to set aside her wages beginning with the very first month of employment. 

Medicaid
Many people who establish a PASS plan qualify for Medicaid benefits once a portion of his or her earned or unearned income is invested in a PASS. Medicaid is a health insurance program that is funded by both federal and state governments. Medicaid policies often differ significantly from state to state. Eligibility for Medicaid is based, in part, on financial need. States have some discretion in determining who their Medicaid programs will cover and the financial criteria for Medicaid eligibility. To be eligible for federal funds, states are required to provide Medicaid coverage for most individuals who receive federally assisted income maintenance payments, as well as for related groups not receiving cash payments. Medicare is an entirely different national health insurance program that provides hospital and medical insurance for people 65 years of age and older, certain younger people with disabilities, and people with kidney failure. It is divided into two parts, hospital insurance and medical insurance.

PASS Plans For Self-Employment

A person submitting a PASS with self-employment as the work goal must include a detailed business plan. A business plan is also necessary if the PASS establishes a limited partnership by purchasing equipment or other assets, or if it establishes an independent enterprise in conjunction with a pre-existing business that out-sources work to the new business.

Social Security requires the following in a business plan: the business’s name and address; owner’s name; form of business; a description of the business’s principle activity, including a description of the product(s) and/or service(s); the business’s objectives and timetables for meeting the objectives; an explanation of why the business will succeed; a description of the business’s unique features; a description of the target market including demographics; a section on pricing the product(s) and/or service(s); a financial plan; an advertising plan; and a list of personnel and their roles and qualifications. Learn more about a recommended PASS process.

Examples of Allowable PASS Expenditures:

• Equipment, supplies, operating capital, and inventory required to start a business
• Educational or occupational training facility costs, including tutoring, counseling, etc.
• Attendant care
• Child care
• Equipment or tools, either general use or designed to accommodate the individual
• Uniforms, special clothing (including business wear), safety equipment
• Least-costly transportation, including
• # Public transportation and common carriers,
• # Hiring private or commercial carriers
• # Buying a private vehicle;
• Academic or professional organization dues and publications
• Modifications to make buildings and/or vehicles accessible and operational 
• Licenses, certifications and permits necessary for employment

Key benefits of a PASS.

PASS and People Receiving SSDI or SSDAC (Title II) Benefits

The Person with SSDI Income Only 
Who Uses All Total Countable Unearned Income For the PASS

This is a simple PASS to write because unearned income (SSDI over $564) is available for PASS expenses. Exclusion of the unearned income establishes SSI and Medicaid. The average SSDI check is about $770/month.

Before PASS:

After PASS:

At first glance, you may wonder why a PASS is a good thing – spendable income appears to have decreased. There appears to be less money available to pay for living expenses ($584 as opposed to $770). In reality, however, there is now a total of $1,334 available ($750 + $584) AND the person is eligible for Medicaid!

During the lifetime of a PASS, most Title II beneficiaries will be living on what appears to be far less money than before. A beneficiary may be confused and upset by this. The $564 FBR is less than the SSDI benefit amount for most Title II beneficiaries, but the consumer and PASS counselor must understand that the SSI Medicaid benefits will defray medication costs. For the person with high medical expenses, Medicaid eligibility is an impetus for writing a PASS.

A PASS should cover as many of a person’s allowable work expenses as possible, for example the PASS may pay vehicle expenses such as loan payments, insurance premiums, and upkeep. It can pay telephone bills, buy work clothes, and cover home office expenses. If the person currently buys medication out of his or her SSDI check, Medicaid eligibility will drastically lower those expenses. Often, a person has more total income available after PASS authorization than before. Plus, in the above example, he or she is using the $750 per month to pay for self-employment start-up services and equipment. Over a 36-month period, that is $27,000 available to build a business! 

Please note that this example illustrates what occurs if the Total Unearned Income Available is used for the PASS. However, the amount of SSDI that can be put into a PASS is negotiable.

In the next example, the individual puts just a portion of his or her SSI benefit into a PASS. But no matter how much the individual puts into a PASS, the person’s Total Discretionary Income remains the same -- $584. 

The Person with Unearned Income (SSDI) Only
Who Uses A Portion of Total Countable Unearned Income For the PASS

This for a person with $770 SSDI benefit who wants to put $500 of the SSDI benefit into a PASS plan.

Before PASS:

After PASS:

The Person with SSDAC Unearned Income 
Who Uses The Total SSDAC Countable Unearned Income For the PASS

SSDAC is another readily available source of PASS investment money. A previous example provided the scenario of a person with $450 SSDAC benefits and $134 SSI benefits . Building on that example, the following example shows that with a PASS, $430 ($450 minus the $20 General Exclusion) is unearned income available for immediate PASS use. With a PASS, $15,480 is available to use for business expenses and the persons discretionary income remains the same.The person loses nothing because of the PASS investment.

Before PASS:

After PASS:

The Person With Both Earned and Unearned Income 

Hank is a cartoonist earning a gross monthly salary of $285 (his earned income) and SSDI of $825 per month (his unearned income). Here are the calculations for his maximum PASS amount:

Before PASS:

After PASS:

Because Hank is investing the maximum amount he can of his earned and unearned income in the PASS, he is eligible for an SSI check of $564 per month plus Medicaid benefits. His pre-PASS monthly income was $1,110 – now Hank’s monthly discretionary income is less – $759. But he also is investing $915 in his PASS and he now also is on Medicaid. He can use his discretionary income to pay for his current and other expenses and use the additional $915 per month for his business. Over 36 months the PASS provides $32,940 for his business. 

A PASS using unearned income from SSDI or SSDAC usually is effective and produces excellent results for the person wanting to start a business. SSDI or SDAC (Title II) funding is quite adequate for initial start-up or for leveraging funding through other sources. 

PASS and People Receiving Only SSI (Title XVI) Benefits

The Person with a Job 

Tony earns $771 per month as an electronic assembler. He wants to start a computer repair business but can't without additional income. Here is how a PASS can help him achieve his goal. 

Before PASS

After PASS

This is a typical scenario for an SSI recipient. The person's Usable Discretionary Income remains the same – but over a 36-month period, this person accumulates $12,348 for developing a business. 

Remember, a person receiving only SSI must be earning a paycheck in order to have a PASS. 

A Person with Resources in Excess of Allowable Limits

Occasionally, a person receives money or property in excess of Title XVI resource limits, threatening his or her SSI eligibility. Gladys is an SSI beneficiary who was terminated from her job and received a $5,000 lump sum payment from the company’s retirement plan. She had earned $650 each month at her job – after deductions and dividing by 2, she received $282.50 from SSI each month. Assuming no other assets, Gladys is now $3,000 above SSI resource limits. She can write a PASS for $3,000 (or more) to help her start a business while remaining eligible for SSI and Medicaid. She can buy equipment or inventory, or pay for any education she needs to help her start or run her business. Likewise, an SSI/Medicaid beneficiary with a disability who inherits a trust fund, gets money from a parent, or receives some other money above SSI resource limits can write a PASS plan to reduce the resources below the $2,000 limit. This continues SSI/Medicaid eligibility while he or she works toward self-sufficiency. 

A Person Expecting Earned Income (In the Near Future) and Receiving SSI

It is possible to write a PASS based on projected earnings and have it approved before employment actually begins. The PASS will begin setting aside wages starting with the first month of employment. This is a very proactive PASS, which may be used by an employee who is buying into his or her employer’s business, or buying equipment or tools which will enhance the profitability of the business.

PASS Developed on Projected Employment Wages

Before PASS

After PASS

The person receives the same amount of SSI and continues on Medicaid but is also using $383 of his or her salary to pay for allowable PASS expenditures. Over 36 months he or she accumulates $13,788 for partnership or equipment.

Prioritizing PASS Expenditures

The PASS Work Incentive funds goods and services that enable a person to become more self-sufficient. The previous examples illustrate that the amount of a PASS contribution differs based on a person’s circumstances. This may require prioritizing items according to their relative importance in the person’s employment plan. For example, a new vehicle may initially be a high priority but the consumer may have to purchase other items more critical to the plan’s success instead – perhaps a used or cheaper vehicle would suffice. In many ways, PASS preparation is another avenue for the consumer and counselor to define employment and career goals. 

Other Social Security Work Incentive Programs

The following two Work Incentive Programs allow Social Security recipients to lower the amount of wages that contribute to substantial gainful activity resulting in more income for both SSDI and SSI beneficiaries. For the self-employed person this may be important because of income fluctuations that occur during the business’s startup phase. It also allows the person to test employment and the business’s profitability without losing benefits.

Impairment Related Work Expenses (IRWE) - Using an IRWE, SSI beneficiaries can recover some of the costs of work-related expenses incurred as a result of the disability. It supports an employed person and allows Title II beneficiaries to reduce their income below SGA levels until they can achieve a level of self-sufficiency that decreases their reliance on benefits.

The Title XVI recipient can participate in a PASS plan and deduct the cost of the IRWE from monthly gross wages, which increases the amount of SSI check. For Title II beneficiaries, deducting an IRWE may keep gross monthly earnings below SGA, thus allowing Title II eligibility.

IRWE deductions must meet the following criteria:

• Expenses must enable the person to work; 
• The person’s physical or mental disability makes the items or services necessary to gain or maintain employment;
• The person pays the costs and is not reimbursed from other sources;
• Expenses must be paid in a month in which the person is working, and;
• Expenses must be reasonable.

There are no time limits on how long a person may use an IRWE. The expense need not be a monthly, recurring expense – it may be a one-time expense that is pro-rated over 12 months. 

To establish an IRWE, write a letter to the local SSA office. In the letter list each expense, document each expense by submitting receipts, and describe how the expense meets the IRWE criteria. The SSA representative will review the letter and make a determination. Prior to its implementation, we recommend discussing a proposed IRWE with the SSA representative.

Deductible IRWE Expenses include:

• Supported Employment services that lead to self-employment
• Attendant care services on the job or at home (helping the employee get ready for work). Family members qualify, if they can prove that performing the service causes economic loss
• Transportation costs such as modifying a vehicle driven to and from work, SSA-approved mileage to and from work, paying drivers or taxi services where such services are not commonly required by community members without disabilities
• Medical devices, wheelchairs, pacemakers, respirators, etc., that allow someone to work
• Prostheses that enable employment
• Interior residential modifications, if the person works from home; exterior residential modifications to enable access to public sidewalks, streets or transportation
• Disability-specific routine drugs or medical services
• Diagnostic procedures to evaluate, control, or treat the disability or condition
• Physician-prescribed, non-medical appliances and devices essential for controlling the disability or condition at home or work (e.g., air filtering equipment)
• Expendable medical supply costs
• Service/guide dog purchase and dog food, license, and veterinary expenses

Subsidy

Employment subsidies exist when the person involved in self-employment receives:

• Unpaid help (this may come in the form of business management, tax preparation, volunteer labor, etc.);
• Unincurred business expense (e.g., a business support or expense that someone else pays for), and/or;
• Soil Bank Payments (farmers/ranchers)

Subsidies are used by Title II beneficiaries to reduce gross monthly income so they can remain below SGA and continue receiving Title II and Medicare benefits.

Social Security Work Incentives for People With Blindness

According to the Social Security Administration a person is statutorily blind if the visual acuity in the better eye is no greater than 20/200 with the best correcting lens or if there is an accompanying restriction in the field of vision such that the widest diameter subtends an angle of no greater than twenty degrees. People who are considered visually impaired under this definition are eligible for Title II, SSDI, benefits if they are not earning SGA (substantial gainful activity) as earlier described.

2004 SGA Amount for People Who are Blind

Effective January 1, 2004, the monthly substantial gainful activity (SGA) amount for persons receiving Social Security disability benefits based on blindness is $1530. 

It is important to remember that since 1997, the blind SGA is no longer tied to the over-age 65 retirement earnings test. SSA looks solely at earnings. It does not consider time spent in the business or value of services rendered as it does with a person who is not blind.

The blind SGA amount continues by law to be adjusted annually based on the national average wage index. 

There is no SGA level to qualify for Title XVI (SSI) benefits. However, resource levels must remain below $2,000 for a single person and $3,000 for a couple. The Social Security Work Incentive Program which is available for the SSI beneficiary is called Blind Work Expenses.

For the person with blindness as a Title II beneficiary, IRWE and Subsidies are available for both employed and self-employed.

Available IRWE expenses for Persons with Blindness

Figure 14 outlines Blind Work Expenses (BWE) for SSI beneficiaries. BWE allowable expenses need only be work-related expenses incurred by the person. 

Figure 14

Subsidies and IRWES Available for People Who are Blind

Work Subsidies for people employed in regular work situations included employer provided services or accommodations, service provider accommodations, or pay that does not represent actual productivity or job described duties. In the case of a person who is self-employed, the cost of the goods and services supplied to the person (including building space for storage or sales/service of items), and profits from installations not immediately supervised by the person are subtracted from earnings after business expenses.

Chapter 8 Study Guide: Social Security Work Incentives

1. Rodney wishes to start a riding stable where he will train and board horses. He has located a facility that is for sale for $35,600. He currently is receiving a monthly SSDI payment of $859. If he invests the entire allowable amount of his SSDI in a PASS, how long will it take before he has the 20% down payment required by the seller?

2. Sarah currently is working for a local veterinarian as a groomer, dog walker, and cage cleaner. She would like to go to school to become an assistant and a part owner in the business. A semester at the local community college (including books) costs $745. She earns $850 per month. Assuming that a semester is 3 months long, and it will take 4 semesters to complete the course, calculate how long it will take Sarah to pay for school using a PASS.

3. Deb is eligible for SSI and Medicaid due to her disability and currently receives an SSI check of $254. She works for a local beautician earning $705 per month. Last week, she received a back-payment check of $3,500. She already has $1,800 in a savings account. She and her counselor are contemplating a PASS plan to send her to beautician school so she can eventually be self-employed. She wishes to return to the FBR of $564 and be eligible for Medicaid. How much will she contribute each month to her PASS? How does the PASS effect her monthly cash position?

4. Ed receives a $768 SSDI benefit check each month. Anticipating income from employment, he wrote a PASS for a candy wrapping machine so he could become a limited partner in a business. He is now working and earns $750 per month. How much can he put into his PASS each month?

5. Chuck currently receives a $564 SSI check monthly. In 3 months, he will begin earning $900 a month as a mechanics helper in a local full-service garage. The owner will make him a limited partner if Chuck can purchase a machine to diagnose new car models. The machine will cost $12,500. Chuck decides to write a PASS now so it is approved ahead of time. How many months will it take to pay for the machine using writing a PASS for the maximum monthly amount? What will Chuck’s SSI payment be?

6. People who receive SSI benefits must be ______ before they may begin setting aside wages in a PASS plan.

Study Guide Answers: Chapter 8 - Social Security Work Incentives

© July 1998, 1st Revision June 1999, 2nd Revision February 2001