Self Employment and Social Security Benefits. Presented by Edwin J. Lopez-Soto

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2 Self Employment and Social Security Benefits Presented by Edwin J. Lopez-Soto 2

3 Self Employment Vs Employee SE complicates the benefits analysis SE adds a layer of complexity to the treatment of income for SGA determination and SSI payment calculation Some work incentives are unique to selfemployment Not all people who own their own business are self-employed by SSA standards 3

4 Clues to Employment Type Self Employment IRS Form 1099, Schedules C or SE Cash, checks or non cash items in lieu of payment to individual or business Individual responsible for making all FICA contributions and tax payments Wage Employment IRS form W2 Cash, paycheck or non-cash items in lieu of pay Employer withholds FICA and taxes from pay (some exceptions) When in doubt refer to SSA 4

5 Types of Small Businesses Range from cottage industry to formal incorporation (Limited Liability Comp, S corporation, sole proprietorship) Starting a business is complicated Advise the beneficiary to consult with a business consultant, accountant, and/or legal or tax advisor 5

6 Is It Self Employment? To determine the existence of a trade or business: RS Good faith intention of making a profit or producing income Continuity of operations, repetition of transactions Regular occupation Holding out to others as being engaged in selling goods or services 6

7 Is It Self Employment Other factors: Person derives income from the trade or business Length of time, although certain activities are seasonal Illegal activity may constitute a trade or business (they are required to report income and pay taxes) Buying and selling involved with a hobby usually done to improve the hobby, not to derive income 7

8 Is It Self Employment? Implications Earned versus unearned income Earning credits toward retirement or recomputation of benefits Apply deductions The social security act references the internal revenue code but the final decision rests with the SSA 8

9 Self Employment Determine whether activity constitutes self employment If not considered employment, then income is treated as unearned income Examples: hobby income, blood donation, babysitting, recycling 9

10 Verifying Earnings in Self Employment SSA verifies income using income taxes, (Schedules C,F,SE) profit and loss statements, or signed statement from individual alleging estimated income 10

11 Self Employment and NESE If the activity is established to be self employment, SSA must determine the net earnings from self employment (NESE) NESE may include in-kind income (food, clothing, shelter, car) valued at current market value 11

12 Countable Earnings in Self Employment Net earnings from self employment (NESE). Gross receipts from the business. Minus business expenses. Minus a.0765 exclusion for FICA. Minus applicable work incentive deductions. 12

13 Example of NESE calculation: : monthly gross receipts : business expenses (IRS net income) x.9235 (SSA s exclusion for FICA) NESE/month 13

14 Determining NESE A period of less than a year may be used if the recipient dies or The business changes from a fiscal to calendar year modifying the method for computing and reporting income The period that the business operated in a year, if Title II 14

15 SSDI: Using Trial Work Months Beneficiary reports to SSA when SE activity begins Honor system SSA must rely on beneficiary to report

16 SSDI: Trial Work Period Months Must be providing a service for profit Startup period not TWP Meets the definition of a service month Based on net monthly earnings TWP level ( OR Number of hours engaged in SE activity is 80 or more 16

17 SSDI: Trial Work Period Months In some cases, it may not be possible to determine NET earnings for each month of SE SSA may divide the net earnings for a specific period of time by the months of SE to determine net earnings DI

18 SSDI: Average Monthly Income Self employment income may fluctuate and work may not be continuous (landscaping) Earnings for months the work was performed are averaged to determine SGA Separate distinct periods of different SGA or change in work patterns 18

19 SSDI: Average Monthly Income If payment is not received in every month work is performed, income for the entire work period is averaged: Farmers are paid after harvest average income over the months the work is done Writers are paid when a book/article is published average income over months the document was written 19

20 SSDI: Impairment Related Work DI Expenses Expenses necessary because of the impairment and in order for the beneficiary to work Paid by the beneficiary in the month in which the expense is deducted 20

21 SSDI: Unpaid Help Reasonable value (prevailing wage) of any significant amount of help furnished by spouse, children, or others unpaid Name of individual(s) providing help and relationship to beneficiary Reason for unpaid help Description of services, time spent, length of time arrangement lasted 21

22 SSDI: Unincurred Business Expense Paid for by someone other than the beneficiary, e.g. VR May be no actual expense incurred and paid by anyone. For example: Includes use of space in a government building, or items used in the business Would be approved by the IRS as a business expense, but not included on tax form 22

23 SGA for Self-employed on Title 2 longer than 24 months Determine NESE for year Divide by number of months business was in operation Multiply by.9235 Subtract IRWE, unpaid help, unincurred business expenses If under SGA amount for that year, not SGA. If over and not UWA, this is SGA 23

24 SGA for Self-employed Individuals who have been on Title 2 for less than 24 months Three tests: Significant services AND substantial income Comparability Worth of work 24

25 Determining SGA for Blind Self Employed Beneficiaries After 1978, self-employment activity of blind individuals is evaluated only in terms of the net earnings as compared to the blind SGA level. The additional tests of comparability and worth of work are not applicable, even if on Title 2 less than 24 months 25

26 SSDI: Self Employment If self-employment activity cannot be sustained at a substantial level for more than 6 months, the SSA may consider it an Unsuccessful Work Attempt 26

27 New York Makes Work Pay Partnering Organizations New York Makes Work Pay is a Comprehensive Employment System Medicaid Infrastructure Grant (Contract No. #1QACMS030318) from the U.S. Department of Health and Human Services, Center for Medicare and Medicaid Services to the Office of Mental Health on behalf of New York State. It is a joint effort of the Burton Blatt Institute at Syracuse University and the Employment and Disability Institute at Cornell University with the collaborative support of the Employment Committee of the New York State Most Integrated Setting Coordinating Council to develop pathways and remove obstacles to employment for New Yorkers with disabilities. 27