Supplemental Security Income (SSI) and Self-Employment by Lucy Miller

>>LUCY AXTON MILLER: Hello, everybody. Welcome to our
presentation on SSI and self-employment. My name is Lucy Axton
Miller, and I am one of VCU’s team members on the National Training
and Data Center. And basically, what my team does is train
people all around the country about the impact of
paid employment or, in this case, self-employment on Social Security
Disability benefits. So before we actually get into the slides,
let’s put everything in context a bit. One of the biggest barriers to employment
or self-employment in the world of disability
is fear of how that income will affect really critical cash benefits,
like SSI. And SSI stands
for Supplemental Security Income, and it’s one of the really
important benefit programs available to adults and children with
disabilities through the Social Security Administration. The other program, SSDI, Social Security Disability
Insurance, is very different, and we are not going to
be touching on those benefits during presentation today at all. Today’s presentation
will focus exclusively on the SSI program and how achieving a
self-employment goal will impact those benefits and the Medicaid
coverage that comes with those benefits. So that’s just a little
bit of background before we get into the objectives. So let’s take a look at what we hope to accomplish
today. The
first area is that we want to describe how Social Security determines
earned income for SSI recipients who are self-employed. And
self-employment in the SSI program is treated very differently from
wage employment, and we will be covering those differences. Second,
we hope that you’ll come away with an understanding of how
self-employment income affects SSI cash benefits and the Medicaid
coverage that comes in most states automatically with eligibility
for SSI cash benefits. Third we hope that after this time together
you are able to identify some of the important work incentives that
apply to people who are self-employed and who receive SSI. And we
are not going to have enough time today to cover some of the more
complicated work incentives, but I certainly will provide you with
some research so that if you have a mind to, you can do some more
research into that area. So we’ll have some resources, I am sorry. And then finally, we hope that you are able
to describe how SSI recipients should report self-employment income
to Social Security. And it sound like such a simple thing, but
it’s an area where beneficiaries really get themselves into trouble. They don’t know
when to contact Social Security to let someone know that they have
started a small business. They don’t know how to report the income
that’s generated from self-employment. So hopefully we’ll shed some
light on that today. So let’s get started. Why is self-employment even an issue? Why are we even talking about that today? Well, over the last 10
or 15 years, self-employment is increasingly being seen as a viable
employment outcome for people with disabilities, even the most severe
disabilities. As a matter of fact, rather than saying “even
the most,” particularly the most severe disabilities. And that’s
because self-employment tends to be very accommodating of a
disability. So rather than you having to apply to whatever
rules an employer might have, when you are self-employed,
you can work from home, you can often flex your hours, you can
set up your workspace to accommodate whatever disability you have. If you are having a
bad day, maybe you don’t do as much work that day. But
self-employment can be incredibly flexible and very accommodating. And so depending on a person’s disability,
it might be a much better option than trying to get on with an existing
employer. It’s also highly empowering. What could possibly be more
empowering than starting your own company, operate ago small
business, doing something that you have a passion for or a real talent
for? And that really gets us into the third bullet
here, it can be very personally rewarding. And it can be quite lucrative if you are
successful in launching that small business and getting everything
going and generating that self-employment income. So
self-employment, as you can see, is definitely an area of growth and
an area that can be highly accommodating for people with
disabilities. So to understand how SSI benefits are affected
by self-employment, we need to take a couple
steps back and just do a brief review about how any type of earned
income affects the SSI benefits. Now, just even another reminder, the SSI program
is very strictly means tested. So not only are these benefits affected by
earned income, whether that’s wages or self-employment income, they
are also affected by unearned income, which is any kind of income
a person might receive that’s not remuneration for work performed;
and also resources or assets; right? So this program is highly
affected by income and resources. Now, the presentation today is
going to focus inclusively on self-employment income, which is a type
of earned income. But it is important to remember that other
types of income and resources or assets can affect
someone’s eligibility for SSI. Now, just as a brief review of how the SSI
program looks at earned income, the amount that an individual receives
in their SSI cash payment today reflects their earning status,
and SSI cash payments can go up and down every month based on how
much countable income an individual has. So that’s one of the interesting things about
the SSI program is that benefits fluctuate and can fluctuate widely
depending on how much countable income is at play. Now, Social Security, the good news is Social
Security does not reduce a person’s SSI cash payment by $1 for
every dollar earned. There are lots of deductions. And we’ll get into some of that today
so that you can see how that works. But something important to
remember is that the SSI program treats earned income quite
favorably. It loves work. It’s not so kind to unearned income, but
the SSI program has lots and lots of deductions for earned income
and treats earned income quite favorably. One of the things to remember when you are
talking to SSI recipients is that when an SSI recipient works,
that individual always ends up with more money in their pocket
at the end of the day, even when the SSI benefits are reduced. So because it’s not dollar
for dollar — and we’ll show you those calculations in a minute —
everyone who works who gets SSI comes out ahead financially by doing
so. The other thing to remember is that because
of certain work incentives, even if that SSI cash payment
is reduced, even if it’s reduced to zero, the related Medicaid coverage
that comes with SSI in most states can be retained through a work
incentive called 1619(b) — we’ll cover it — and it’s important
to know that that is a very important protection. Almost every SSI recipient
qualifies for that. We’ll show you what those eligibility rules
are. And that protection can continue indefinitely. So the ongoing
receipt of Medicaid, which is so important to so many SSI recipients,
there are work incentives that protect that. So that’s really
important to know. So here are the steps that Social Security
takes when someone earns money, and these steps are the same
whether that’s wage employment or self-employment. And I know this is math, and some
of us might be a little bit math challenged, but it’s not hard math,
I promise. The steps are in order here, 1, 2, 3, 4, 5,
and they are very simple. First, Social Security starts with a person’s
gross monthly earnings, and if you are familiar with that
term, gross means that dollar amount before deductions like taxes
are taken out. So they
start with your gross monthly earnings, and they subtract a $20
general income exclusion. I know that doesn’t seem very generous,
and that exclusion has been the same since the SSI program was
established in 1974. But it is a $20 deduction. And as long as the
person doesn’t have any unearned income in the mix, that $20 is taken
off of the earned income. So you take that $20 off the top. Next, step 2, there is an additional $65 earned
income exclusion that’s taken off of any earned income. You’ll often here the $20
and the $65 combined, and you will hear people describe this as, well,
the first $85 that you earn doesn’t count. That’s where that $85
number comes from. So take $20 off, take $65 off. Next, you have this remaining amount, and
Social Security divides it in half. And that’s often called the one for two offset. And what you are left with is called countable
earned income. So
you can see right off the top, $20, then $65, you take what’s left,
you divide it in half. So less than half of a person’s earned income
would count when Social Security is looking to reduce that SSI cash
payment. And the final step here, step 5, you take
the total countable income, and you subtract that off of that
individual’s base SSI rate. And there are some different rates that come
into play there. We
are recording this or doing this training in 2018, and the maximum
SSI rate for federal dollars is $750 a month this year. Now, not
everyone has that as their base operate, but lots of people do. So
that would be the dollar figure that Social Security would start with
and then subtract the countable earned income off of that. And so
the remaining amount is that individual’s adjusted SSI cash payment. So you can see that these are fairly simple
calculations that Social Security performs, and the takeaway
from this is that people always come out ahead by working. And you can see here on this next
slide, this is something I wish everyone who watches this training
would sort of commit to memory because this simple sentence is so
powerful. The first $85 that you earn each month doesn’t
count at all. Right? That’s taken right off the top. For anything that you
earn over that first $85, Social Security will take $1 from your SSI
check for every $2 that you earn. And if you can go back and look
at those steps, what that means, SSI recipients always come out ahead
by working. And if you know very much about the SSI program,
you know that it’s pretty complex, so lots of intricate
rules about how your check may be reduced based on this type of income
or all the list of resources and how much you can have in resources
that can make a person eligible or ineligible. And there are few things that you can use
that word “always” and have it be true. But this is one of them,
and this is a really critical point to make. SSI recipients who work,
whether that’s in wage employment or self-employment, always come
out ahead financially, and that’s the big takeaway from all the math
that we just showed you. So let’s talk a little bit about the difference
in how Social Security looks at income from self-employment
as compared to income from wage employment. Now, wage employment is a month-by-month
thing. They are going to look at countable earned
income. They
start with a person’s gross wages that comes out on that pay stub
before taxes are deducted. And it’s month by month. And it really
is very specifically when did you receive that money? It’s that
particular. So if you are paid every week or every other
week, there are going to be a couple of months in the
year that you receive that extra paycheck, and that literally is counted
in that month that it’s received and can cause an SSI cash payment
to go down more for those months when there’s maybe an extra paycheck. So the concepts for
earned income from wage employment, you start with gross, it’s month
by month, it’s countable income received in each month. So let’s compare that to how Social Security
looks at income from self-employment. Well, one of the things about self-employment
that Social Security is well aware of is that income can vary
drastically month to month. And if you’ve never been self-employed
or know someone who has been, that makes sense. When you first start
your business, maybe you lose money. You actually have negative cash
flow for a couple of months. Or maybe even in the middle of a year,
after you’ve started a business, you might have highly profitable
months and then months that are not so profitable. And for people
who are self-employed, Social Security recognizes that that kind of
variance would be really hard to deal with if you are actually looking
at that earned income from self-employment month by month by month. So they don’t do it that way. They take your profit for the year,
right, so they wait until you have actually filed your taxes, and
here April is tax season, so that’s probably close to all of our hearts
right around now. They look at that profit, and they literally
divide it by the number of months in the calendar year to spread it
out and to compensate for the incredible variances in income that
can come from self-employment. Now, another difference, a really critical
difference, is that Social Security looks at this figure that
they call net earnings from self-employment, and that’s different from
gross wages that you would have when you are employed in a company, working
for someone else. Net earnings from self-employment is also
called NESE, so you have all of these acronyms for everything in Social
Security land, and this is a common one in self-employment, net
earnings from self-employment is NESE, and that has a particular
calculation that’s used. So the difference here, net earnings from
self-employment, not gross wages, and they are not looking at it
month by month by month; they are looking at that profit for the year
and then dividing it over an entire calendar year. So let’s take a look at that. Now, NESE is a concept that a
lot of beneficiaries misunderstand. Basically, it is the profit
that you would report to the IRS by a business for a year less a portion
of what’s called self-employment taxes. Now, there are a couple of
concepts in just that first sentence that people get a little muddled
about, so let’s take a look. Profit is not the same as gross sales. So if I run a business and I am selling a
bunch of stuff that I manufacture, that I make, gross sales is how
much I actually receive when I sell a product. But when there is expense that you incur as
a small business owner to make something that you sell, that is
subtracted when you determine how much your actual profit is. Right? So it’s really important that beneficiaries
understand we are not talking about reporting gross sales to Social
Security because that would be a very inaccurate number and is too
high. Right? We are
looking at profit. Profit is gross sales less any allowable business
expenses. Right? Any legitimate business expenses. But that isn’t all. The next step that Social Security takes
is they literally reduce that profit by another factor, and this is
something if you’ve never been self-employed and you don’t know a
lot of people who have been you might be unaware of. When you are
self-employed, you have to pay something called self-employment tax. When you are in wage employment, that employment
tax comes out of your paycheck, you know that FICA contribution
that reduces your paycheck, that is about 7%. It’s 7 plus some figures in there. And
then your employer pays an additional amount over and above what comes
out of your paycheck. Now, when you are self-employed, you have
to pay both your — the wage employee’s contribution
and the employer’s contribution because you don’t have an employer. You are your own
employer. And what Social Security is doing when they
are determining NESE, they are going to take that
profit, they multiply it by this odd little figure of .9235, and
that further reduces the NESE, the net earnings from self-employment,
so that a self-employed person isn’t penalized for the other half
of that self-employed tax that if you were in wage employment wouldn’t
come through your paycheck at all. It’s an additional amount that the employer
pays on your behalf. So when you are self-employed, you have to
pay both of the halves of that self-employed tax, and
Social Security allows you to deduct part of that when they are looking
at how much of that net earnings from self-employment to count. See, that makes sense;
right? Now, what the result is, it’s an annual NESE
figure. And again,
it’s derived from your tax returns. At the end of that tax year,
you complete all those forms, you send them to the IRS, you send your
tax returns to Social Security, they take the figure that you report
to the IRS and convert that to net earnings for self-employed people,
and that’s what is counted when they are determining how much of your
SSI cash payment needs to be reduced. So how do you calculate it? Well, they use that annual NESE
to then convert to a month-by-month figure. Because remember in the
SSI program your eligibility for SSI is actually determined month
by month, and the amount of your check is determined month by month. So they have to take that annual figure, and
they have to convert it to a monthly dollar amount. Well, the way that Social Security
does this is very simple. They take that annual figure, they divide
it equally by 12 because that is how many months there are in a tax
year, a calendar year, and Social Security always divides it by 12
even if you did not operate your business the entire year. And I
know that sounds sort of odd, but that’s the way that they do it. So let’s say you opened your business in May,
you didn’t work for a full 12 months, but Social Security is going
to take that annual NESE, they are still going to divide that
by 12. Even if your work
is seasonal, even if you only work part of the year, even if you closed
down your program, let’s say, in October or November, it doesn’t
matter; Social Security always divides by 12. So that monthly NESE
is then the starting point, that’s that number that’s plugged into
the calculations to determine how much that SSI cash payment should
have been. Now, here’s another wrinkle. When you are in wage employment,
you go to work, you are reporting your wages to Social Security, and
they are adjusting your check as you move forward; right? So as you
move forward, your check is being adjusted based on how much countable
income you have, month by month by month. But in self-employment,
it always has to be in arrears because you have to wait a full tax
year to know how much profit there was. So when Social Security takes
that annual profit, that’s for a past year, they divide it by 12,
and they adjust your SSI cash payment retroactively. Uh-oh. So if
you actually have a profitable business — we hope that our
beneficiaries do — it will mean — and it’s kind of unavoidable —
that you are probably going to be overpaid a little bit, and you will
have some settling up to do. It’s almost impossible to avoid that
for self-employed people, so it’s really an important counseling
point that we explain to beneficiaries who run profitable small
businesses that when that NESE is determined at the end of the year,
certainly that first year of operations, if there’s a profit, that
check will be reduced retroactively. So if you got $750, $750, $750,
$750 that whole year and Social Security comes back and says oh, gosh,
you should have only received $700, then the balance that you received
that you shouldn’t have will be recoverable. That means that Social
Security will need that money to be paid back. It’s not the end of
the world, and it’s nothing to get upset about. It’s simply an
unavoidable result of self-employment. Now, how does Social Security deal with that
if a beneficiary is overpaid? Basically they will adjust forthcoming checks,
future checks, by a certain amount every month to
recover — that’s what they call it — that overpayment. Certainly they will write to the
beneficiary and ask if the person wants to pay it back in full. Most
SSI recipients don’t have funds available to do that. So as long
as there is an SSI cash payment, even a reduced one, still available,
Social Security can reduce that further to compensate for that
overpayment, recover that overpayment. It’s an unavoidable aspect
of self-employment. So let’s look at an example. This is Ellen, and Ellen starts
her own business. She calls it Web-Design on a Dime. She opens this
company in June of 2017, so last year. She just filed her 2017 taxes. April is our tax month. And her net profit for the year was $8,000. Now, what does that mean? That doesn’t mean those were her gross
sales. Maybe she actually brought in $12,000 a year
or $15,000 a year. That $8,000 is her profit, so that is after
all of those allowable business expenses have been deducted. Right? So that’s
the amount that’s on her tax return. Now, up to this point, Ellen has been receiving
the full federal benefit rate in SSI, and that federal benefit
rate, also known as the FBR, in 2018 is $750. So that’s the maximum federal amount of
SSI that an individual can receive. She wants to know what will
happen to her SSI check now that her business is generating a profit. So let’s take a look at the steps that we
outlined for you earlier and show you how these steps would apply to
Ellen. All right. So here’s a little bit of math. Okay. Don’t get
freaked out about this. I know some of us in human services, we are
not great at math, but this is easy math. So step one, we identify that annual NESE. Ellen’s NESE, $8,000
of annual net profit. And remember that weird little number that
Social Security multiplies that profit by, .9235, and remember, atlas
to compensate for the fact that self-employed people pay both pieces
of that FICA, the employed person’s half and the employer half. So
it reduces how much counts in order to be fair. Right? So that
figure there is $7388 of annual NESE. Step two, they have to take that figure and
divide it by 12 so that it’s a monthly amount. And remember, even though Ellen started
her business in the middle of the year, right, not the full year,
they are going to still divide that figure by 12, so you can see that
math here. $7388 divided by 12 is $616. That’s the amount of
monthly NESE. All right. Carrying that further, here is how this plays
out in the calculations. And we’ve gone over these deductions before. You have the $20 general income exclusion. And because Ellen doesn’t
have any unearned income, that $20 is taken off of her earned income. So that leaves her with $20 less there. They move on to the $65 earned
income exclusion. Anyone who has any kind of earned income is
permitted to take that additional $65, so that’s $85 off the top. That leaves $531. Then they are going to divide that figure
in half. Remember you get that one-for-two disregard. So less than half of
the monthly self-employment income is going to count for Ellen. So
the countable NESE is $265.50. She actually earned for the month
$616, but Social Security is not going to count all of that. It’s
less than half. And that’s really good news. So step four, we calculate that SSI cash payment. So remember,
they retroactively go back and deduct $265.50 each month so that the
total amount for the year is right for Ellen. So she is going to
have an overpayment. She’ll have to — Social Security will have
to recover that from her future SSI cash payments. Now, her business
generated $616 of NESE on average, but Social Security is only going
to count $265.50 of that income. The adjusted SSI cash payment is
applied for all 12 of those months in 2017. Now, it means that she’s
been slightly overpaid, and she’s going to need to pay back that
amount. And again, Social Security will deduct that
from future SSI cash payments. Now, remember, SSI recipients are like oh,
no, my check is being reduced. Oh, no, I owe money. But it’s really important for SSI
recipients to look at the total financial outcome. Even though Ellen
is now having to pay back a little bit of SSI, for that full year
she generated a profit from her business, she ended up with more money
in her pocket than she otherwise would have had if she had chosen
not to open her business at all. And that total financial outcome
is such an important point to stress with SSI recipients. They can
tend to get a little hung up on the fact, uh-oh, I have to pay back
some of my SSI. You have to look at the big picture. Yeah, it’s
not fun to owe Social Security back some money, but look at how much
more you had in your financial outcome for that year than you
otherwise would have had. So let’s talk a little bit about some of the
work incentives that can apply. Because what we’ve explained up till now are
the very basic calculations that once you report
self-employment income, Social Security enters that data into their
system, and it sort of automatically calculates. But there are several special work
incentives that aren’t automatic that an individual has to qualify
for. There have to be certain circumstances to
make you eligible for those. They also involve more recordkeeping. You have to
submit sort of a request to Social Security to have these special
work incentives approved. What these work incentives do is further
reduce the amount of SSI — I am sorry — earned income that counts
when Social Security is determining how much to adjust your SSI cash
payment for. Now, because of the length of this presentation,
we don’t have time to cover each of these in detail, but
I have provided a link here on this slide for a wonderful resource
that if you’ve never seen it, as soon as this presentation is over,
hop on the Web, go and find this, download it. This is our Bible. This is the Red Book on Work
Incentives. It’s produced by Social Security every year. It’s
available for free to download on their website. And it provides
a really nice explanation of all the different work incentives for
all of the disability programs, not just SSI, but also the SSDI
program. And I am going to refer you there. I will give a very brief
overview of the work incentives listed here, but for further
information, I would suggest that you start with that Red Book. Like
I said, if you’ve never read it, it’s a critical piece of information
that anyone who is helping people with disabilities get jobs or start
small businesses should have at their fingertips. So let’s start with the first one, impairment-related
work expenses, IRWEs. Social Security understands that sometimes
a person with a disability might incur expenses
in order to work that a not disabled people might not incur. These expenses are due
directly to the disability and are incurred because the person is
working. And there’s innumerable things that can count
as IRWEs. It can be paying for a reader if you are blind. It could be
transportation services. There are many, many different kinds of
expenses that can qualify as an IRWE. What you have to do is document
to Social Security that you are incurring these expenses. It has
to meet certain criteria. You request approval to have these
expenses deducted when Social Security is determining your income. And if these expenses are approved, it further
reduces how much of your earnings are counted, and that allows
you to keep more of your SSI cash payment. Right? So it’s really pretty logical. IRWEs are applied in self-employment and wage
employment. As
a matter of fact, there’s an added advantage to IRWEs when someone
is self-employed. A lot of IRWEs also count as legitimate business
expenses. When that is the case, rather than claiming
them as IRWEs, you simply deduct them when you are determining
your profit, and the good news is that even reduces your income
for tax purposes as well as for the purposes of NESE when Social Security’s
deciding how much of that self-employed income to count. So there’s a decided
advantage there. Most self-employed people don’t actually claim
IRWEs. They
take those expenses and run those expenses through their books for
their business. Now, not everything that would count as an
IRWE would also count as a legitimate business
expenses. A perfect
example is medical expenses, unreimbursed medical expenses many
times are IRWEs, but almost never would a medical expense be permitted
by the IRS as a business expense. So when that’s the case, you can
still submit the receipts to Social Security, make your case that
the expense meets the criterion for an IRWE, wait for that approval,
then they will deduct those from your NESE at the bottom, and they
are deciding how much of that monthly NESE to approve. There’s also something called blind work expenses. Now, if any
of you have spent anytime learning about how work affects disability
benefits in Social Security world, one of the things you see is that
if you qualify for benefits based on statutory blindness, there are
a whole series of different and special rules that apply to those
folks. So now, the definition of statutory blindness
is very specific. Not everyone who would describe themselves
as being blind will qualify as being statutorily blind and
be receiving benefits based on blindness, but some people are. And for those individuals,
they get a special deduction called BWEs, or blind work expenses,
and this is incredibly easy. Blind work expenses are any expense
that a beneficiary incurs by working. It does not have to be related
to the disability. So you can see it’s more inclusive than IRWEs. IRWEs are impairment-related work expenses. BWEs are simply work
expenses. So any expense that someone who is statutorily
blind incurs by working can be deducted. So it’s a very powerful work
incentive for individuals who receive benefits based on blindness. Just something to remember. Now, one of my favorite work incentives is
listed third here, it’s known as the student earned income exclusion,
and it’s a wonderful way to reduce countable earned income
for individuals who are young. You have to be under age 22, and you have
to be a student per Social Security’s definition, and that
can get a little complicated, but you have to be going to school
per their definition, and that can be high school, that can be college,
that can even be online kinds of training, it can be vocational
training, anything along those lines. But if you are working and going to school
and you are under the age of 22, you can deduct
a big portion of your earned income. This is such a powerful work incentive that
many people who claim it have no reduction in their
SSI cash payment because of earnings at all. And this applies to self-employment just
as it does to wage employment. So always be watching for those young
people that you are serving who are still in school because they have
an additional work incentive that other SSI recipients don’t have,
and it’s incredibly powerful. And then last but certainly not least is Plan
to Achieve Self-Support, or PASS. I always refer to this as the mother of all
work incentives because it’s complicated. This is basically where
you write a detailed plan to achieve a specific occupational goal,
name and address that plan you set aside income or resources that
would otherwise cause a reduction in the SSI cash payment or in
eligibility for SSI. You set aside that money in a special bank
account, and Social Security ignores it, and you use that money to
purchase items or services that you need to achieve a long-term
occupational goal with the idea being if Social Security invests in
you now that you will work at a level that will either preclude cash
payments later or will cause the cash payments to be significantly
reduced. Now, a Plan to Achieve Self-Support is a powerful
work incentive, but it’s not for the faint of heart. It’s a lot of work. It involves completing a complex form. But it can be really useful
in self-employment because lots of times starting a small business
incurs expense. Like it costs money for someone to start a
business, and PASS can be a really good way to set aside
the funds that you need to get that business capitalized. So here on this slide talks about that a little
bit. We
literally, at the NTDC, we do hours and hours of training on PASS. Like I said, this is a complex work incentive,
and we offer Internet-based courses that are many hours
long that talk about self-employment and how to use PASS to capitalize
a business. So
suffice it to say you are not getting enough information to be able
to do that by yourself from participating in this training, but the
important thing is that you remember there is this work incentive
called PASS for people who are looking at self-employed. It is
definitely worth having an expert, a Community Work Incentives
Coordinator, like a benefits specialist, talk to that person to see
if PASS might apply because it is a very good way to capitalize a
business. You can use income or resources to fund a
PASS, and Social Security, as I said, disregards that income
that you set aside in the PASS, allowing that SSI cash payment to
be higher. Right? So
it’s kind of you leveraging your own benefits to fund the
capitalization of your business. It’s an invaluable source of ongoing funds
to support the day-to-day operating expenses during business
start-up. That
sounds kind of simple. It’s really rather complicated. Again, you
are not going to know how to get a PASS written from watching this
short training, but hopefully you will come away from this being at
least aware that there is this powerful work incentive that might
be leveraged for a particular beneficiary you are working with. Now, one of the most complicated aspects of
using a PASS to fund a business is for Social Security to approve
that plan, it must be accompanied by a detailed business plan. See, I said this was not
for the faint of heart. It involves a lot of work. So Social
Security provides an outline. That plan must include certain
things. I have provided a link here to what those
requirements are so if you want to you can click on that and
take a look at what those requirements are. Again, if you are not skilled in this, if
you are not trained, I wouldn’t recommend trying to
help a beneficiary with a PASS. That is a referral to a Community Work Incentives
Coordinator, a benefits specialist, someone who is trained and
certified to do high-level benefits counseling. Right? Just
something to know. So let’s talk a little bit about a really
cool aspect of self-employment and one of the reasons why
self-employment can be so powerful in the SSI program. Remember that SSI is a very strictly
means-tested benefit. Right? So not only does income affect
eligibility and the payment amount, but you have to have countable
resources below a very set limit, and that limit for an individual —
meaning a non-married person, is $2000. And that limit is assessed
every single month. Okay? So a single month in which you had $2500
in the bank and all of that was countable could cause ineligibility
for SSI and the SSI-related Medicaid for that month. Okay? So
that’s a really important point. However, for people who are
self-employed, there is an incredibly powerful exemption, and it’s
called property essential to self-support. The acronym is PESS. I
know that’s confusing because we just talked about PASS. This is
PESS with an E in the middle. And basically, in a nutshell, what
PESS is is the exclusion allows people to have resources, that can
be things, that can be equipment, it can even be cash in a business
account. Items that you use to conduct trade or business
are disregarded when Social Security is doing
that resource determination month by month by month. So for small business owners,
PESS allows the building of some wealth where, in the SSI program,
that’s pretty tough to do. There are exemptions like homeownership
that allow SSI recipients to build wealth, but there aren’t many of
those. This PESS is tremendously valuable and allows
small business owners who are SSI recipients to build assets
and resources in a business held by a business to conduct trade
or business and not have those count against the SSI individual’s eligibility
for the ongoing SSI and SSI related. Now, the cool thing about PESS is there’s
no upper limit. It’s
not like oh, that’s fine but don’t go past $10,000. No, no. It
doesn’t matter what the limit is. It’s not a time-limited exclusion. As long as the business is operational and
the property, whatever that is, equipment, the cash, the things,
are in current use, meaning that the business is still running, you are
doing the work for your business, and you need those items or the
cash in order to operate your business, then those things will qualify
as PESS. They will
be disregarded by Social Security. They are owned by the business;
right? So it allows the building of some measure
of wealth. And
that’s something that’s really important to discuss with
beneficiaries because this is an incredible advantage that
self-employment provides that wage employment does not offer. So let’s take a look at Medicaid eligibility
and SSI. Many
years ago, in 1988, the Social Security Act was amended to make it
easier for SSI recipients to work and not to lose their Medicaid
coverage because, as you may well imagine, that $750 check, okay,
that’s important, but that suspect as critical as health insurance. And for people, particularly self-employed
people, who don’t have the option of enrolling in an employer-sponsored
plan, maintaining eligibility when you go to work is really
important. The provision in the Social Security Act that
allowed people to keep their Medicaid when they work is called
1619(b). And that’s
because that’s the number or the section of the Social Security Act
that basically explains this provision that was established in 1988. And it allows people to disregard a substantial
amount of their earned income when that Medicaid determination is
being made. And 1619(b)
doesn’t even kick in until the person would have enough NESE, net
earnings from self-employment, to actually cause the SSI cash payment
to go to zero. As long as the beneficiary receives a penny
of SSI, regular Medicaid continues in most states. There are a few
exceptions. But in most states. But even after NESE is so high,
your business is so profitable that you are not receiving an SSI cash
payment anymore, 1619(b) allows eligible individuals to retain that
critical Medicaid coverage. Now, to qualify for 1619(b), you have to meet
certain criterion, but the overwhelming majority of SSI recipients
do meet the criterion. So it’s not something only a few people get
to benefit from. It’s a powerful work incentive. And another really awesome
thing about 1619(b), it’s not time limited. So it can go on forever
as long as you meet those criterion. So let’s take a look at what those are. First of all, have you
to have gotten SSI, a cash payment, in the previous month before the
wages caused your SSI to go away. So this isn’t, you know, a tricky
way for people to establish eligibility for SSI-related Medicaid who
never got SSI. Right? This is an SSI work incentive. So you still also, the second criteria, you
have to still be disabled. And that means that you continue to meet the
medical criteria to qualify for disability benefits,
that medical recovery is not an issue for you. And for most SSI recipients, that’s not
a problem. Third, you have to pass something that Social
Security refers to sometimes as the Medicaid needs test, also
referred to as the Medicaid use test. Basically, what Social Security is looking
at, they want to continue Medicaid for individuals
who need it and who have used it. It’s not a hard test to pass at all. Social Security,
when your wages go over the break-even point and your SSI check goes
to zero, they actually share files with the Medicaid agency. They
are going to go in and look. Have you used your Medicaid in the last
12 months? And that’s an indicator that you need it. Even if you
haven’t used it, they will ask you a series of questions — they’ll
get you on the phone and ask a series of questions to see if you need
it, and they basically ask you would you need to use your Medicaid
if you became ill or injured in the coming 12 months? And Medicaid
beneficiaries typically would answer that yes. Or they’ll say do
you need your Medicaid in order to continue operating your small
business? So it’s just they are check to go see does
this person rely on the Medicaid, or is there another
option for this person? And remember, in self-employment, 1619(b)
really is important because you don’t have that employer plan
to rely upon. Now, fourth, this is a critical bullet here. You have to have
gross annual earned income — that would be NESE; right — NESE, the
net earnings from self-employment — below this magic number called
the threshold amount. Now, those figures are updated every year. They go up typically every year. And there are different amounts
for every state. So I can’t tell you what your threshold amount
is. Every state has a different amount, and they
change. Now, a good
way to find it — you can literally Google SSI threshold amount, and
you probably would find the chart that Social Security has with those
amounts. Another good way would be to refer an individual
for benefits counseling either through a WIPA
or another way your state may have ways to get benefits counseling. These threshold amounts
are practically tattooed on our arms. For those of us who do this
for our job, we know what those amounts are and are happy to share
those with beneficiaries. So you have to have that annualized earned
income under a magic number, but these numbers are high. Now, in my home state of
Kentucky, that annual amount is nearly $30,000 a year. So I mean,
we are not talking about little bitty amounts of income. We are
talking about good annualized amounts of income that you would have
to earn more than that before your eligibility for the SSI-related
Medicaid would be in jeopardy. Then finally, you have to continue to meet
all of the other SSI criteria. Now, this bullet trips people up because if
you are working at a level that precludes your SSI
cash payment, a lot of beneficiaries think, oh, I am done. If I get letters from Social
Security, I don’t need to respond to them. I can save as much as
I want to and it doesn’t matter. But if retaining eligibility for
the SSI-related Medicaid is something a beneficiary wants to do and
needs to do, then it’s critically important that the unearned income
remain below the allowable limits and those countable resources —
right — have to be below that $2,000 figure. Those numbers don’t
go away just because you are self-employed. They don’t go away just
because you are no longer getting an SSI cash payment. Those income
and resource limits continue forever as long as you retain that
1619(b) Medicaid eligibility. And if you want to retain that
eligibility, those criterion must be met. Again, if this sounds a little complicated
or confusing, remember there’s help. There is free benefits counseling available
to individuals who are pursuing wage employment or self-employment. And anybody planning for self-employment should
be referred for help because it does get complicated. And these are counseling points
that a certified CWIC with a WIPA project or any qualified benefits
specialist or benefits planner can help with. Now let’s talk a little bit about common misconceptions
that SSI recipients tend to have about self-employment. I’ve been working with
SSI recipients who are planning for self-employment outcomes for
many, many years and these kinds of misconceptions are extremely
common. Not only are they common among beneficiaries,
unfortunately they’re common among service providers and
professionals who are working with people with disabilities. These misconceptions can
cause beneficiaries to make terrible mistakes that can affect
benefits. So number one, SSA only counts the income
I take out of my business account. No. That is absolutely not true. What you’re talking about
here is something referred to as owner’s draw. So beneficiaries think
I can have this incredibly profitable small business. I’m generating
all of this income. I can put it in my business account and Social
Security only will count whatever I take out of the account. Wrong. Social Security counts what you report on
your tax returns and that is your total profit, right? So it doesn’t matter that you only took $1.95
every month out of that business account. If for the year your business generated a
profit, that profit will be, remember, turned into NESE, right,
multiplied by that 0.9235 figure, and then divided by 12 and
retroactively will adjust. They will adjust your SSI cash payment
so that you may be overpaid if you didn’t have your SSI already
reduced. So please help me spread the word. It isn’t about I put the money
in my bank account, my business account, and I never took it out so
it doesn’t count. It’s all about the profit. Here’s another one I hear from time to time. Self-employment
income is free money. I don’t need to report it. That isn’t true. You do need to report it two times; one to
the IRS, right, because you don’t have the advantage here of your
employer taking care of a lot of stuff. You have to take care of that yourself when
you’re self-employed. You have to pay your self-employment taxes. You have
to pay taxes on the profits of your business based on how your business
is structured so yeah, you have to report it (a) to the IRS and (b)
to Social Security. So this notion that if I’m self-employed it
somehow doesn’t count is very widespread and unfortunately people
end up getting themselves in terrible trouble with the IRS and with
Social Security when they don’t tell anyone that they’re working and
they don’t report the income from their business so spread the word. Just because you start a small business doesn’t
mean you can just have everything and you don’t have to tell
anyone. You do. And that third bullet, if I’m self-employed
I don’t have to pay taxes. Yes, you do. You don’t have anyone paying them on your
behalf. You don’t have the advantage of that paycheck
where your half of the FICA is deducted and that employer writing
that check to the IRS every year to the authorities that’s paying the
other half of the self-employment taxes. When you are self-employed, you have to do
that yourself and that needs to be paid quarterly if there’s a profit
and if you don’t pay it quarterly you could be subject to penalties
and fines. Believe me. I’m married to a CPA who does small business
taxes and some of the things that happen to people because they don’t
understand the legal obligations that come with owning a small
business and being self-employed, but they’re for real and people
need to take it seriously. And then finally, anybody can start a business. It’s easy. It is
not easy. It’s a lot of work. If it were easy, everyone would be
self-employed, right? Now that’s not to say it isn’t awesome or
that some people aren’t tremendously successful. Lots of people are but
it isn’t for everyone. There are lots of things to consider; keeping
your books, paying your taxes, capitalizing your business, setting
up your bank accounts, doing all of that work yourself, determining
a service or a product that you then have to produce, and you have
to sell it. There’s lots of work involved in being self-employed. Lots of
work. And some people with disabilities, they’re
not well suited to that. Some people without disabilities aren’t well
suited to it. I
have never had a desire to be self-employed. I’m too lazy. I’d rather
be wage employed and make it easy but for those folks for whom it
makes sense, it’s a wonderful alternative but you have to go into
it with intelligence and preparation and know it’s a lot of work
getting a business operational and then maintaining that business
over time. So if you are profitable, how do you report
your income? Well
Social Security requires that you notify them in advance when you
become employed or when you become employed or self-employed. So when
you start a business, it’s worth a visit to the local field office
or a letter to the local field office. Now if you are projecting profits in your
first year and you feel very confident in your projections then you
can report those and Social Security may use those profit projections
to adjust your SSI cash payment prospectively. That means in advance. But you have to
watch out for that because what if your business isn’t as profitable
as you thought it would be? Then your SSI check is going to be reduced
and you’re going to struggle to pay your living expenses so this is
always tricky figuring out how this first year is going to go. A lot of SSI recipients find it better to
not project a profit and have that cash payment prospectively reduced. It’s better to say
you’re not sure and then watch your books on a month by month basis. See this is work. You need to be tracking the income that’s
coming in, the expenses you’re incurring, and looking
at that profit month by month. When your business starts to be profitable,
you need to contact Social Security again and provide
your profit and loss statements, a bookkeeping term, your income
sheets that show here’s how much I earned, here’s what my expenses
are so that Social Security can take that figure and project it forward. Now if your projections aren’t accurate, if
they’re too high, your SSI check will be reduced too much and
you’re going to struggle. If your projection is too low then you’ll
probably be over-paid and you’ll have to have that recovered moving
forward. That’s simply the
nature of the beast. It’s something to know about the SSI program
and the way it deals with self-employment. It can’t be avoided but
it’s something to prepare for. You have to be watching that profit. Beneficiaries should report any major changes
in their profit. What does that word major mean? Well that’s a case by case decision. If you’re watching those profits and you had
estimated a profit of $200 a month, suddenly your profit is 4, 5,
$600 a month, that’s major, meaning it’s going to cause your SSI cash
payment to be reduced further. That’s worth reporting. Now if you have that kind of business where
you lose money and then earn money and lose money and earn money,
those are the ones that are the hardest to gauge and some businesses
are simply like that. What you need to do is make the best guess
you can in that first year of operations, keep your books meticulously,
and then in that second year of operation Social Security will
use whatever the NESE was for the prior year to then prospectively
adjust your cash payment for the coming year. And again with every year of operation, watch
those books and report any major changes that would cause your SSI
to be reduced. They’re
going to verify that NESE every single year. You have to verify that
by sending in your tax returns, and that’s required, so you need to
get on it as soon as your tax year is over. Get together your records,
have your accountant work on that, file it, and make sure that Social
Security gets a copy of those returns. In my opinion, you probably
are best off taking those returns in person down to your local field
office where you can meet with a claims representative, get a receipt
from them to verify that you did submit your returns, and discuss
how that particular NESE figure will affect your past SSI and your
SSI moving forward. You can see, this is a little bit of work
and it does create some issues with managing that SSI cash payment. It’s worth it for those
individuals who manage a successful small business but it definitely
has some very unique aspects that have to be watched. Now on this last slide, I’ve provided you
with links for some additional resources. I have literally given you such a surface
review of how SSI looks at self-employment and the income generated
from self-employment. You know about this much, okay, so probably
just enough to make you a little bit dangerous but there are lots
of places for you to go if you have this compelling need to know and
you want to dig further. The first one is a lengthy paper that we use
when we train benefits counselors on self-employment and Social Security
disability benefits. It explains everything you would ever want
to know in detail. I’m not thinking that would be for someone
who just wanted that very surface knowledge but it is a very,
very deep source of information for those of you who really want
to know everything. Next down is a frequently asked questions
about self-employment and benefits. This is available on our NTDC website and
it was really written for a lay audience so beneficiaries
or professionals in the disability services world. It’s easier to understand and much shorter
than the first resource and please, feel free to print these things
off and share them with beneficiaries. They were written with Social
Security funds. Our staff is funded by Social Security. These
documents are vetted by Social Security’s corporate office staff in
Baltimore so you can rest assured the information provided in these
resources is correct. They are also updated every year so any changes
to the rules or the laws are reflected in the documents so they are
a tremendous resource. They are free because they are provided or
developed using public funds. You can share them far and wide. We
encourage you to do that. We also offer free training, not just on self-employment
but on the impact of earned income on benefits. I’ve provided you with a
link here. This is internet based training. It is six one-hour lessons
with accompanying readings and exercises. You get a little
certificate of completion when you’re done. We offer it almost every
month. It is free and we don’t limit registration
so if this training has sort of peaked your interest in this whole
subject matter of how benefits are affected by work and earned income,
please avail yourself of this training. You’ll come out of this two-week period
knowing a whole lot more than you did before you went in. Now it’s not going to make you a certified
CWIC but it’s going to give you a tremendous amount of information
plus you’ll walk away with lots of written resources in your hands
to refer back to if you can’t remember. Tell me again how this student earned income
exclusion works? This will give you access to all of that information
so don’t forget if this is something you really enjoy then we have
much more training that you can avail yourself of. And then finally I’ve provided a link here
to the website where you can find the designated WIPA, that stands
for Work Incentives Planning and Assistance Program that serves
whatever counties you are in and whatever state you’re in. Remember this is a national
program fully funded by the Social Security Administration. And a
certified, trained, tested CWIC staff these projects in every state
and all of the U.S. territories and are available to provide
individualized benefits counseling to people who are working or are
actively pursuing an employment or self-employment goal. For any beneficiary you know who is planning
for a self-employment goal, please refer them prior to working on
getting that business set up because there are some work incentives
like PASS, the Plan to Achieve Self-Support, that can be used
to fund or capitalize the start-up phase of a business. And there are some complexities when
it comes to reporting self-employment income or NESE. We really would like beneficiaries to see
an expert before that shingle gets hung up and they’re out there
selling product and services and then aren’t sure how to get that
information to Social Security or even what’s going to happen to
that critical SSI cash payment or Medicaid. So remember, get help first, and there is
help available everywhere. Now in your home state, you might have additional
sources of benefits counseling not just the WIPA but
other ways to get benefits counseling. In some states, my state of Kentucky is one
of them, our Vocational Rehabilitation Agency pays for
other people beyond just WIPA to do benefits counseling and they’re
available to work with people who are earlier in that process of
deciding if work is even possible whereas WIPAs tend to focus on people
who are already working, are actively planning like they’re
in a job search mode or business start-up mode, or are actively preparing
for employment. So that wraps up the content for today. I hope that you’ve gotten
something out of this and I hope that you will avail yourself of some
of these additional resources to learn more. Thanks for joining us

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