PEOPLE WITH DISABILITIES WANT TO WORK

SOCIAL SECURITY INCENTIVES MAKE IT SAFER TO TRY

BY ALEXANDRA BAIG, MBA, CFP®

You have an acceptable job. It does not challenge you at all and the pay is only so-so, but is it is pretty much guaranteed until your retirement if you just maintain the status quo. One day, your boss comes to you with a proposal.

The company is launching a new product. There has been some market research, but it is anyone's guess whether the product will actually succeed. You have the background and knowledge to – potentially, anyway – sell the product to customers. The company has a created a sales position for this new product and the job is yours if you want it. The work would be much more challenging and interesting than what you are doing now, and you have the opportunity to make much better money and advance further within the company, but the position will pay commission only, with no base salary. If you fail, there is no guarantee that you could return to your old position. Oh, and because you would be a 1099 employee, you will not have health insurance. Would you take the risky new position or not? I expect many of us would hesitate, at least. This dilemma is somewhat analogous to the one faced by people who, sometimes after much effort, have managed to qualify for Social Security Disability Benefits, either Supplemental Security

Income (SSI) or Social Security Disability Insurance (SSDI) and who would like to start or return to work. Many have the skills and the drive to be successful at work. If they are successful, they will have a much more interesting livelihood and very probably more income. However, for many, their physical, mental or emotional capacity to work is as yet uncertain. What if they achieve a certain level of success at work and begin to earn enough that they lose their eligibility for cash benefits as well as their Medicare or Medicaid health insurance, but then are unable to maintain that level of earning – and, even worse still, have to apply all over again to regain their benefits?

Social Security's Work Incentives are designed to mitigate this risk. They are designed to encourage beneficiaries to take the risk of trying employment with the reassurance that they can maintain their benefits while they try. This article will discuss the details and applications of these Work Incentives.

Returning to the hypothetical situation that opened our article, suppose instead that your boss comes to you with a better proposal. Suppose instead of being commission-only, the new position has a base salary that will continue until you know how well you can handle the job, but on top of that base you will earn bonuses if you do well. Moreover, your health insurance will continue and you will have the option to return to your old job if the new one proves impossible. I expect you, like most of us, would be inclined to take the risk. In a similar fashion, Social Security work incentives encourage people with disabilities to work, knowing that they have a safety net to fall back on. •

GETTING TO WORK : SOCIAL SECURITY WORK INCENTIVES AND EMPLOYMENT

The Ticket to work

Everyone, who receives Social Security Disability benefits, has a "Ticket to Work", which (though it used to be an actual paper ticket that arrived in the mail) is now simply an electronic designation. Ticket holders first choose an employment network, either their state's vocational rehabilitation office, or a private-sector agency. The employment network then provides a suite of services, including skills assessment, assistance with resume writing, job search and application, education on how to request reasonable accommodations, and guidance on and planning for the impact that work income will have on the Ticket holders' public cash and health care benefits. The employment network is paid by Social Security at no cost to the beneficiary. As long as a Ticket holder is making what the Social Security Administration calls "timely progress," the Ticket to Work, the person is not subject to continuing disability reviews. Timely progress is defined quite specifically and depends on the career stage of the ticket holder. If the person needs further education in order to become employed in a field for which they have the capacity, then timely progress is measured by completing courses of study and obtaining certificates or degrees. If the person goes straight to work, then timely progress is measured by the person reaching and sustaining certain levels of earning.

Earned Income Exclusion and Student Earned Income Exclusion

When an SSI beneficiary returns to work, the first $65 ($85 if they have no unearned income) of their earned income is not counted. Only one-half of the remaining income is counted and reduces their SSI benefit. For example, take a person, receiving the 2021 maximum SSI benefit of $794, who begins to work and earn $905/month. The first $85 and then half of the remainder of their work income do not count, leaving $410 (($905$85)/2). The beneficiary's SSI is thus reduced by the $410 and they continue to receive $384/month. Full time students under 22 have an earned-income exclusion of $1,930 up to $7,770 in a calendar year. Note that unearned income is treated less favorably. Only $20 may be excluded; the rest reduces the beneficiary's SSI dollar for dollar.

Achieving a Better Life Experience (Able) Accounts and Plans to Achieve Self-Support (PASS)

SSI and Medicaid beneficiaries may have a disincentive to work because, despite the income exclusions discussed above, if they save some of their work income it becomes from the month following receipt a "countable resource." To maintain SSI and Medicaid eligibility, a beneficiary's countable resources may not exceed the very minimal threshold of $2,000. Countable resources are basically cash and cash-equivalents like investments. ABLE accounts and PASS both provide approved methods to except cash and investment assets from being counted as resources. ABLE accounts are special taxadvantaged accounts available to people who have a Social Security level of disability (whether or not they are actually receiving benefits) that started before the age of 26. Generally, the accounts can receive up to $15,000 of contributions per year, but workers can contribute an additional amount that is the lesser of their work earnings or $12,490. ABLE account funds are not countable as a resource for SSI and Medicaid eligibility purposes. If the ABLE account balance exceeds $100,000 and the amount over $100,000 plus the person's other countable resources exceeds the $2,000 threshold, SSI payments are suspended until the account balance declines. Medicaid eligibility is not affected. ABLE account funds can be withdrawn tax-free to cover any Qualified Disability Expense, a category that includes not only expenses, directly related to the account holder's disability, but also to things like education, technology and daily living expenses.

A PASS is a much more focused vehicle for saving money for a certain period of time. A person with a disability, who wants to save money to pay for goods or services that will increase their earnings capacity, can do so with a PASS. The PASS is like a business plan that explains the amount and nature of the expenditures, the time period over which they will occur, and the way that the expenditures will enhance the person's capacity to earn. A worker with a disability might use a PASS to pay the cost of tuition for a certificate or degree program, to engage in a certain type of work-related skills training, or to purchase the equipment to freelance or start their own business. Income contributed to a PASS is not counted as income when calculating eligibility for SSI and Medicaid eligibility, or for calculating the size of the worker's SSI payment, and funds held in a PASS are not countable resources for the duration of the plan. To maintain the exclusions, the PASS must be used to fulfill the purpose for which it was created.

Impairment Related Work Expenses (IRWE)

IRWE are expenses that can be deducted from a person's earnings before Social Security counts those earnings to determine the ongoing eligibility for benefits. To qualify as IRWE, the item or service to be expensed must be necessary because of the person's disabling condition(s), be necessary for the person to work (although its use need not be limited to the work environment) and not covered by insurance of any kind. The cost of a service animal, medical or assistive technology, adaptive clothing, or special transportation along with the co-pays for medications and visits to physicians or therapists, are all examples of IRWE. Once approved by Social Security, IRWE can be deducted each month that they are applicable. Large-ticket, one-off expenses can be deducted either in the month paid or spread out for up to a year.

Employer Subsidy

An employee with a disability may require reasonable accommodations that decrease their productivity relative to a co-worker who does not require those accommodations. If the accommodation(s) can be quantified by the employer and accepted by Social Security, the value of that accommodation can be deducted before Social Security counts those earnings to determine ongoing eligibility for benefits. If an hourly employee is allowed 60 minutes more of break time during the day than their co-workers, then the monthly value of the deduction is 1 x the hourly wage x days worked in the month. If an employee with a disability is only required to complete four units of work to others' five, or is only expected to cover four out of five of the position's major responsibilities, then the value of the subsidy deduction is one-fifth of the employee's monthly compensation.

Continued Payment Under Vocational Rehabilitation or Similar Program

People with disabilities who work and then lose eligibility for cash benefits either because they are deemed to have improved medically or because they have turned 18 and fail to meet the adult disability criteria, may continue to receive cash payments if they are either participating in a program for vocational rehabilitation or receiving other similar services, including services under an Individualized Education Program (IEP) or the Ticket to Work. Payments will continue until the person completes or exits the program or until Social Security determines that the program is no longer enhancing the person's capacity to work.

Continued Payment Under Section 1619(a)

A person, who receives SSI and starts working, will see their work earnings reach the Substantial Gainful Activity (SGA) threshold before the SSI reduction formula has reduced the benefits to $0. For example, the SGA level for 2021 is $1,310/month. Suppose a worker's earnings reach $1,315. If the SSI reduction formula, including the earned income exclusion, is applied to this level of earnings, the worker would have ($1,315-85)/2 or $615 of countable income. Since the maximum SSI payment for 2021 is $794 under 1619(a), then they will still be eligible to receive the $179, remaining after the reduction formula is applied despite having exceeded the SGA threshold.

Unincurred Business Expenses

People with disabilities who opt for selfemployment can deduct the value of expenses that are incurred and paid by a third party from their net self-employment income if those expenses would have reduced countable net income had they been incurred and paid by the self-employed worker. For example, if a parent buys an adult child with a disability a fabric printer so that the adult child can start a business such as custom-designing t-shirts, the machine would be an unincurred business expense. Another example would be if a local non-profit provides office space to a worker with a disability at no charge.

Trial work Period (TWP) and The extended Period of eligibility (EPE)

When an SSDI beneficiary first starts work, Social Security compares the earnings to a Trial Work Level threshold. For 2021, this amount is $940/month. The worker can accumulate up to nine months in which they exceed that threshold in a rolling 60-month period. It does not matter whether they exceed the threshold by $1 or $5,000. Once the worker has completed the ninth months, they have completed Phase 1 of going off their SSDI benefits. They then enter a 36-month Extended Period of Eligibility when they still qualify for a cash benefit, but only receives that benefit if their work income is below the threshold of Substantial Gainful Activity (SGA). The SGA threshold for 2021 is $1,310/month ($2,190 if blind).

Medicaid Continuation

Many people with disabilities are not as concerned about losing their cash benefits as they are about losing their Medicaid, which underwrites both health care and support services (via Medicaid waivers, which fund most of adult disability services in most states). Workers, who once received SSI along with their Medicaid and subsequently begin earning at a level where they are no longer eligible for either SSI or Medicaid, are able to continue their Medicaid as members of a "Special Group of Former SSI Recipients", enshrined in section 1619(b) of the Social Security regulations. Workers who never received SSI may use Medicaid Spend-Down in some states. This means that Medicaid will only count the income left over after the person has paid for necessary health and support services. In other states, workers can direct their excess income to a so-called Miller Trust and income thus directed will not count for Medicaid eligibility. Finally, workers with disabilities who have income above the Medicaid threshold have the option of "buyingin" to Medicaid for a modest monthly premium.

Medicare Continuation

Workers, who became eligible for Medicare after receiving 24 months of SSDI benefits and who subsequently work enough that they no longer qualify for SSDI, may still maintain their Medicare eligibility for at least 93 months from the start of their EPE. Workers who want to sustain Medicare beyond that point, but are not yet 65, or do not have enough work credits, have the option of buying into Medicare, although that can be expensive. The cost of the Medicare buy-in may be offset by one of the Medicare savings programs.

Unsuccessful Work Attempt

If a worker with disabilities succeeds in exceeding the Substantial Gainful Activity threshold, but is unable to sustain that level of work for at least six months, and the work income decreases or ceases due to either the disabling condition(s) or to the removal of special conditions, such as the presence of a job coach or reasonable accommodations, then that period of time is considered an unsuccessful work attempt. Earnings during an unsuccessful work attempt will not be used to deny renewed or ongoing eligibility for disability benefits.

Expedited Reinstatement

If a worker receiving SSDI successfully completes their TWP and EPE and subsequently stops receiving cash benefits, but within five years must reduce work or stop it altogether due to the same disabling condition(s), they can request that their benefits be reinstated without the need to file a new application. Note that a person with a disability, who receives SSI, does not actually lose their eligibility. Rather, their income from work may reduce their payable SSI to $0 for a month or a series of months. However, if they are reporting their income and it drops to level where, according to the reduction formula SSI would be again payable, the payments will resume.

ABOUT THE AUTHOR:

Alexandra Baig maintains her own national financial planning practice, Companions On Your Journey, and also acts as the Benefits Specialist for Clancy & Associates, a Chicago-based law firm focusing on special needs planning. Alexandra has an MBA from the University of Michigan and her CERTIFIED FINANCIAL PLANNER™ designation and is a member of the Academy of Special Special Needs Planners. In particular, she is well-versed in the government benefits available to people with special needs and the rules governing them. Her goal is to help people with disabilities and their families make the most of public and private money to live the life they chose.