Slide 1



Slide 1

Social Security Benefits Analysis

▪ Many entrepreneurs receive some form of government benefits or services

▪ Possible to maximize income while protecting access to critical benefits

▪ Thorough benefits analysis must be incorporated into business planning

▪ Best to start benefits analysis early in the process

Many entrepreneurs receive some form of government benefits or services such as Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), Medicare, Medicaid, subsidized housing, food stamps, the Medicaid-Waiver, or any combination of these. Since these programs are associated with things as significant as cash benefits, healthcare, food, and housing, it’s both common and legitimate for potential entrepreneurs to express concerns about the impact starting a business may have on the benefits they receive. There is no way to support entrepreneurs to make informed choices about entrepreneurship without full consideration of their benefits picture. Through the years, we’ve seen time and time again that is it possible to simultaneously maximize income well beyond the poverty level while still protecting access to critical benefits, such as healthcare. In order to do so, though, a thorough benefits analysis must be incorporated into the business-planning phase. Additionally, entrepreneurs must have access to continued benefits planning and support for as long as they remain beneficiaries of any of these government programs.

All of the government benefit programs have their own rules and regulations surrounding income and ongoing eligibility. Never assume that the rules for one program will be the same as for any other program. As the business financials are developed, they can be used to evaluate the impact on each government benefit program separately.

It’s important to start analyzing the benefits early in the process. While the business financials will provide critical information, there is no need to wait until the financials are developed to start the benefits conversation. Some entrepreneurs may need time to identify and work through potential benefits issues along the way. Additionally, some entrepreneurs will have the possibility of developing a Plan for Achieving Self-Support (PASS), an SSI work incentive. PASS can be a tremendous financial resource to new businesses. Assessing for this in the early stages is critical, so that all necessary steps can be completed to initiate the PASS as quickly as possible. Waiting until late in the business planning process to discuss benefits can result in delayed openings and/or a reduction in potential funding.

Slide 2

Work Incentives Planning & Assistance Projects (WIPA)

▪ All states have WIPA projects

▪ Community Work Incentives Coordinators (CWICs) assist with:

o Analyzing and predicting impact of projected business earnings

o Identifying and utilizing work incentives

o PASS development

▪ work/WIPA.html

▪ TA also available from the Center for Social Capital

All states have Work Incentives Planning and Assistance, or WIPA, projects. These projects were authorized through the Ticket to Work and Work Incentives Improvement Act and are funded through the Social Security Administration, or SSA. Individuals working for the WIPA projects, referred to as Community Work Incentives Coordinators- or CWICs, do not work directly for SSA though. Instead, SSA established cooperative agreements in all states (and US territories) with community agencies or organizations to provide WIPA services.

The WIPA projects and the CWICs who work for them serve every region of the state, and their primary purpose is to assist beneficiaries with understanding and predicting the relationship between work and SSA benefits. They can assist entrepreneurs receiving benefits to analyze and predict the impact of current or projected earnings on the benefits they receive. They can also educate entrepreneurs and team members about the different work incentives for which they might be eligible and even assist with PASS development.

CWICs can be an important resource for entrepreneurs during both the planning phases and as the business launches and grows. The initial benefits analysis is only point in time data. Access to benefits must be reassessed throughout the life of the business as income grows and changes. It is always a good idea to connect with the local CWIC for support with the benefits planning and analysis. At the same time, it’s critical for providers of self-employment services to have a foundational understanding of SSA benefits as they relate to self-employment as well.

State WIPA projects can be located through the SSA website:



Technical assistance on benefits planning is also available from the Center for Social Capital. Given the importance of thorough and quality benefits planning, please do not hesitate to connect with any and all sources of support.

Slide 3

Benefits Planning Query

▪ First step is to confirm all benefits received

▪ Benefits Planning Query (BPQY)

▪ Two release of information forms with this week’s supplementary materials… must complete and submit both forms

▪ BPQY tracks SSA programs… must still identify and verify all other benefits received

The first step in supporting entrepreneurs through the benefits analysis process is to confirm all benefits received. Entrepreneurs may not be sure about all of the programs to which they are connected or about their specific status within those programs. They can request a document called a Benefits Planning Query (BPQY) from their local Social Security office. The BPQY provides critical information related to SSA benefit programs, Medicaid, and Medicare.

We highly recommend getting the BPQY for all entrepreneurs receiving any SSA benefit. BPQYs are free to beneficiaries, CWICs, and VR counselors. If you contact the Center for Social Capital for technical assistance with benefits analysis, we will have to see the BPQY before giving any specific input. Two release of information forms are included in this week’s materials and can be downloaded to your computer. Both forms must be completed and submitted, even though they appear to be exactly the same.

Not all government benefit programs will be included on the BPQY. You will also need to verify whether or not entrepreneurs are receiving other benefits such as subsidized housing, food stamps, and or Medicaid-waiver services just to name a few. CWICs can assist with identification and verification of all benefits received.

Slide 4

SSA Benefits Overview

▪ Two main programs:

1. Supplemental Security Income (SSI) may provide:

▪ Cash benefit

▪ Access to Medicaid

2. Social Security Disability Insurance (SSDI) may provide:

▪ Cash benefit

▪ Access to Medicare

There are two main SSA programs from which individuals with disabilities can draw benefits. Supplemental Security Income (SSI) is a means-tested financial assistance program, which means individuals must: 1) meet the disability determination criteria, and 2) meet the income and asset limits. The SSI program can provide a cash benefit and is associated with Medicaid. In the majority of states, Medicaid eligibility comes automatically with SSI eligibility and no separate application is required. Some states do have Medicaid eligibility criteria that is more stringent than the SSI eligibility criteria, so if you live in one of these states it’s important to learn the Medicaid eligibility rules and regulations as well.

The second program is the Social Security Disability Insurance (SSDI). SSDI is an entitlement program. This means that eligible individuals are entitled to draw the benefit as a result of their contributions to the Social Security system (via FICA). Since it is an entitlement program, there are no asset or resource limits for SSDI. Individuals eligible for SSDI may receive a cash benefit, and the amount of the cash benefit is determined by the amount of money that was contributed through FICA. The SSDI program is associated with Medicare. No separate Medicare application is required; however, there is a 24-month waiting period between date of entitlement to SSDI and the start of Medicare coverage.

We’ll talk more about both of these programs throughout this week’s presentations, but here is the key: Although both of these programs are overseen by the Social Security Administration, they are separate and distinct programs. Each has its own rules and regulations surrounding initial and ongoing eligibility and access to the related healthcare benefit. Entrepreneurs may be receiving benefits from either or both programs. It is critical that access to each be assessed individually and in accordance with the correct rules and regulations.

Slide 5

Net Earnings from Self-Employment (NESE)

▪ Applies to sole-proprietorships and partnerships

NESE = Net Profit x .9235

▪ C-Corporations pay wages or salary to owner(s)

▪ LLC member(s) elect to be taxed in one of two ways:

o Individual- NESE applies

o Corporation- wages/salary applies

One of the first questions typically asked when with regard to SSA benefits and self-employment is “what counts as income?” The answer varies depending on the business structure.

For businesses formed as sole-proprietorship or partnerships, the answer is Net Earnings from Self-Employment, or NESE. NESE is based on the business net profit, but SSA gives a slight deduction to unincorporated business owners. To calculate NESE, multiply the business net profit by .9235. NESE can be calculated on both a monthly and an annual basis.

We’ll talk more about the net profit in next week’s presentations, but the net profit equals the gross income minus the operating expenses. Some entrepreneurs fear that the total business sales will count as income, so you can reassure them that the net profit is the starting point, not total sales.

C-Corporations are considered separate legal entities, and the corporation pays wages or salary to the owner(s). These wages, therefore, are the starting point for the earned income calculation. Owners of S-Corporations may be taxed in the same manner as unincorporated businesses.

Individuals who form LLCs are called “members”, not owners. LLC members can elect to be taxed either as individuals, in the same manner as sole-proprietorships or partnerships, or as corporations. Depending on how they elect to be taxed, either NESE or salary/wage income will be the starting point for SSA earned income calculations.

Slide 6

A Note About Business Structures

▪ Important considerations related to SSA

▪ ONLY SOLE-PROPRIETORSHIP OR PARTNERSHIP for entrepreneurs who need to maintain access to SSI/Medicaid

▪ Forming LLC or Corporation eliminates eligibility for SSI/Medicaid due to excess resources

▪ If working with an entrepreneur receiving SSDI who wants to form a corporation… contact CSC for technical assistance

While each business structure listed above has its own unique advantages and disadvantages, there are a few important considerations related to SSA benefits.

Entrepreneurs receiving SSI who need to maintain access to either the cash benefit and/or Medicaid can only form sole-proprietorships or partnerships. The formation of any type of corporation or LLC can result in termination from benefits due to excess resources.

Since there are no resource limits associated with the SSDI program, SSDI beneficiaries have more flexibility in selecting a business structure. However, SSDI beneficiaries who elect to form either LLCs that are taxed as corporations or S- or C-corporations might have a portion of the dividends or the shareholder distributions attributed to them as income, which can impact the countable earned income calculation. If you are working with a SSDI entrepreneur considering forming a corporation, we recommend contacting the Center for Social Capital for technical assistance.

Given some of the rules, the majority of entrepreneurs with whom we work tend to form either sole-proprietorships or partnerships, so our examples for the remainder of this presentation will be based on these business structures.

Slide 7

Social Security Disability Insurance (SSDI)

▪ “Insured” Entitlement program

▪ No asset or resource limits

▪ Eligible for Medicare after 24 month waiting period

o Contact CSC for TA if working with someone in 24 month waiting period

▪ “All or nothing” program

As stated previously, the SSDI program is an “insured” entitlement program. Individuals can draw a benefit on their own record (they have worked and made sufficient contributions through FICA), or on the record of a parent who has died, retired, or become disabled. If an individual (or his/her parents) have made sufficient contributions to SSA, in order to be eligible for SSDI the individual must also 1) meet the disability determination criteria, 2) not be earning over a certain amount, called Substantial Gainful Activity or SGA, at the time of application and not expected to earn over this amount in the future. The SGA amount is established annually, so it changes from year to year. We will discuss this in more depth later in the presentation.

As we also stated earlier, there are no asset or resource limits associated with this program, and beneficiaries are eligible for Medicare coverage after a 24-month waiting period. It’s important to determine if entrepreneurs are in this 24-month waiting period, as some different rules do apply. If you are working with someone in the 24-month waiting period, we’d recommend contacting us at the Center for Social Capital and/or a CWIC for technical assistance.

Earned income (and only earned income), however, can impact eligibility for SSDI. SSDI is also an “all or nothing” program with regard to the cash benefit. Beneficiaries are either entitled to draw their entire check or they will receive no cash benefit at all. This, at times, seems to make it a more challenging program with which to work.

SSDI beneficiaries essentially pass through phases as they begin to earn post-eligibility income. We’ll discuss each briefly now, and I’ll provide a basic overview of the SSDI program with regard to earned income and self-employment during this presentation. More detailed information can be found in the BOSS Manual Supplementary Materials that are included with this week’s materials and can be downloaded and saved for future reference.

Slide 8

Trial Work Period (TWP)*

▪ 9 TWP months (total)

▪ Receive full SSDI check… regardless of how much is earned

▪ TWP month criteria:

o Monthly NESE exceed $720 (2010), OR

o 80 hours or more worked/month

▪ 9 TWP months over 60-month rolling period… do not have to be consecutive months

When SSDI beneficiaries begin earning income after they are eligible for the cash benefit, they enter the first “phase” of work, the Trial Work Period or TWP. For the record, we refer to this as the first “phase”, but this is not an official SSDI term. So if you walk into your local SSA office and say that someone is in Phase 1, don’t be surprised if they have no idea what you are talking about!

There are a few key points to remember in regards to the TWP. First, all beneficiaries are granted 9 TWP months. This is great because during these TWP months, they are guaranteed to receive their full SSDI cash benefit- regardless of how much money they earn. They could earn $200,000 one month and still receive their full check. Second, in order for it to count as one of the TWP months, the must either: 1) work over 80 hours in their business, or 2) have monthly NESE of $720 or more. During the TWP, NESE is assessed monthly, so this is calculated on a month-by-month basis. If the entrepreneur meets either criterion, the month counts as one of the TWP months. How much money they have to earn changes annually, so please note that $720 is the 2010 figure.

SSDI tracks the 9 TWP months over a rolling 60-month, or 5-year period. The TWP months do not have to be consecutive. When a entrepreneur in this phase reports income or hours over the TWP amount, the SSDI program will look back over the last 5 years to see when the last TWP month was used. If the entrepreneur had already used 6 TWP months within this window, it would count as TWP month 7. If the entrepreneur had used no TWP months within the previous 60 months, it would be designated TWP 1.

Once the 9 TWP months have been used though, they are all gone. Even if the entrepreneur did not work for 10 years following the 9th TWP month, he would not start with a new one. Not surprisingly, many beneficiaries do not know how many TWP months they have used or how many they have left. Some may have had an inconsistent work history, with the number of months worked and income earned varying from year to year. Others might not have detailed records of monthly earnings covering a span of multiple years. And most certainly do not keep up with the annual changes to the TWP amounts.

Frequently, the best and maybe the only way to verify TWP month usage is to secure the entrepreneur’s BPQY, and CWICs can assist with this. Verifying where someone is in the TWP though is a critical part of analyzing benefits, so do not overlook this step.

Slide 9

Extended Period of Eligibility (EPE)

▪ Begins month after 9th TWP month and lasts for next 36 consecutive months

▪ NESE averaged across calendar year

▪ Countable earned income compared to SGA

o SGA 2010: $1000 (not blind) / $1640 (blind)

▪ Receive check during cessation & grace period months

▪ After 2nd grace period month:

o Countable earned over SGA… no check

o Countable earned under SGA… receive check

When beneficiaries complete their trial work period, they enter the next phase- the Extended Period of Eligibility or EPE. The EPE begins the very next month following the 9th TWP month and continues for the next 36 consecutive months. So if Jane completed her 9th TWP in March 2009, her EPE would begin in April 2009 and last until April 2012. Regardless of whether she is working or how much she earns on a month-by-month basis, this 36-month period will be her EPE.

During the EPE, NESE is averaged across the calendar year. This can be helpful because it smoothes out some of the highs and lows of self-employment income. To calculate the average monthly NESE, you simply take the annual net profit, multiply this by .9235, and then divide by 12. The countable earned income amount is based on the average monthly NESE.

Throughout the EPE, the countable earned income is compared to a different figure, called Substantial Gainful Activity or SGA. The SGA amount changes annually, but in 2010 it is $1000 for beneficiaries who are not blind and $1640 for beneficiaries who are blind.

The very first time their countable earned income exceeds SGA, called their cessation month, beneficiaries receives the full SSDI cash benefit. They will also be guaranteed to receive their full checks for the next two consecutive months. SSDI calls these next 2 months “grace period months”; I call them the “get ready” months. SSDI is essentially telling beneficiaries to get ready, because up until this point- all through the TWP and until their countable earned income exceeded SGA in the EPE- they were guaranteed to receive their check. From this point on though, eligibility for the cash benefit may vary on a month-to-month basis. Any month the countable earnings are less than SGA, the entrepreneur is entitled to the cash benefit. For any month where countable earnings exceed SGA, the entrepreneur is not entitled to a check. Generally speaking, since NESE is averaged across the calendar year, there is not the same variation in monthly countable earnings (and therefore eligibility for the cash benefit) that occurs with wage employment. However, it is possible that variations in work incentives could result in eligibility for cash benefits some months but not others across the same calendar year. This continues through the remainder of the EPE.

Slide 10

Countable Income Test

Countable Income Test applies to both:

• Beneficiaries who have received SSDI benefits for more than 24-months AND have not reached cessation

• Beneficiaries who are blind

3-Step Test applies when:

• Determining initial eligibility

• Beneficiaries have received benefits for less than 24-months

• Beneficiaries have received benefits for more than 24 months AND have reached cessation

• During initial reinstatement period for EXR

The process described on the previous slide, where countable earnings based on average monthly NESE are compared to SGA to determine eligibility for the SSDI cash benefit is referred to as the “countable income test”. The countable income test is used to assess whether earnings meet SGA when a beneficiary has received SSDI benefits for more than 24 months and have not reached cessation. It is also used to assess whether earnings meet SGA for beneficiaries who are blind.

 

There is another process, referred to as the “3-Step Test”, that can be used to assess the value of earnings in certain cases. The 3-Step Test applies in the following situations: 1) when determining initial eligibility, 2) if beneficiaries have received benefits for less than 24-months, 3) if beneficiaries have received benefits for more than 24 months AND have reached cessation, and 4) during initial reinstatement period for expedited reinstatement (we’ll talk more about EXR later in this presentation.)

Slide 11

3 Step Test

• Significance of services: how significant the work is to the business

• Comparability of work: how work performed compares to that of an individual without a disability

• Worth of work: based on what other individuals engaged in similar activities earn

Under the 3-step test, the SSDI program evaluates more than just the average monthly NESE to determine if a beneficiary is engaged in Substantial Gainful Activity. Income will still be evaluated. If NESE exceeds the annual SGA limit, the entrepreneur has passed the countable income test and the additional tests will not be applied. If not, the SSDI program will also consider:

 

Significance of services

Comparability of work

Worth of work

 

Under the “significance of service test”, the work performed is evaluated in terms of how significant it is to the business. Entrepreneurs running a sole-proprietorship are automatically assumed to be performing significant work. Under the comparability of work test, the work performed is evaluated in terms of how it compares to the work another individual without a disability would be performing. And finally, under the “worth of work” test, the SSDI program will evaluate how much the work effort should be “worth” based on what other individuals engaged in similar activities typically earn. Specific criteria exist for all of these considerations, and each case will be evaluated on an individualized basis. Because the 3-step test is more comprehensive and based on a more subjective assessment, it is recommended that providers working with entrepreneurs who will be evaluated under the 3-Step test contact the Center for Social Capital and/or the local CWIC for technical assistance.

 

The remainder of this presentation and the scenarios presented will be based on entrepreneurs being evaluated under the countable income test.

Slide 12

Termination & Expedited Reinstatement

▪ After EPE, first time countable earned exceeds SGA, terminate from system

▪ No longer eligible for SSDI cash benefit

▪ Expedited Reinstatement

o 60 months following termination month

o If business closes or earned income consistently falls below SGA, can be reinstated on benefits without filing new application

o Up to 6 months of provisional benefits can be granted while request is reviewed

Once the 36-month EPE ends, the first time the entrepreneur’s countable earned income exceeds SGA, she will terminate from the system. This means that she will no longer be eligible for the SSDI cash benefit, even if her countable earned income falls below SGA. The exception to this occurs for entrepreneurs who did not reach cessation during the EPE. In this case, they would still be eligible to receive the SSDI cash benefit the first time countable earnings exceeded SGA following the EPE, as well as for the next two months (the two grace period months). After the 2nd grace period month, they would terminate from the system and no longer be eligible for the SSDI cash benefit.

This can be a frightening thought for many beneficiaries, particularly those who went through an arduous process to become eligible for the benefits in the first place. To help temper some of these concerns, SSDI has added an important safety net, called Expedited Reinstatement of Benefits or EXR.

Under the EXR provision, if the entrepreneur’s business closes or earnings consistently fall below SGA, he or she can request to be reinstated on benefits without being required to complete a new application. Up to 6 months of provisional benefits can be granted while the request is reviewed. If the request is later denied, these benefits do not have to be repaid, unless the entrepreneur filed a fraudulent claim.

Slide 13

Medicare and Extended Medicare

▪ Once 24 month waiting period is complete, Medicare eligible:

o Throughout TWP

o Minimum of 93 months following 9th TWP

▪ Can purchase Medicare when premium free coverage ends

Once the 24-month waiting period is complete, SSDI beneficiaries are guaranteed Medicare coverage during the TWP and then for a minimum of 93 months following the 9th TWP month. During this period, they are not responsible for paying the Medicare Part A premium. They are also entitled to premium-free Part A coverage for any month where they receive the SSDI cash benefit. So for some beneficiaries this continues for much longer than the 93-month minimum.

Once their premium-free eligibility ends, however, beneficiaries do have the option of purchasing this on their own. While there will be an extra cost associated with this, the good news is that they can continue to have access to this healthcare benefit, even after the premium-free coverage ends. In some cases, beneficiaries may be eligible for additional months of premium free coverage even during months where they are not receiving a cash benefit. The best way to determine specifically when premium free Medicare cover will end is to work with the local CWIC.

Slide 14

Calculating Countable Income

▪ Two key figures

1. What was earned (NESE)

2. What counts (based on application of work incentives)

▪ Cannot apply work incentives during TWP

▪ Work incentives are not mutually exclusive- use all that apply

▪ Work incentives reduce countable earned income

▪ Must be submitted to and approved by SSA… require ongoing tracking and documentation

When it comes to treatment of income in the SSDI program, there are two key figures. The first is what the entrepreneur earned, and as we discussed previously, what was earned is the Net Earnings from Self-Employment or NESE. And remember, NESE is assessed on a monthly basis during the Trial Work Period, and then averaged across the calendar year during the EPE and beyond. The second is “what counts”, and this figure often differs from the actual NESE.

In order to calculate “what counts”, up to three different work incentives can be applied. These are: Impairment Related Work Expenses (IRWEs), Unpaid Help, and Unincurred Business Expenses. We’ll discuss each of these in more detail in a minute. There are few key points related to these work incentives though to keep in mind from the start. First, no work incentives can be applied during the Trial Work Period. The evaluation of income during the TWP is based solely on the actual monthly NESE and the numbers of hours worked. In phases other than the TWP, however, the incentives can be applied, including during the EPE, after the EPE, and during initial eligibility evaluations. Second, with the exception of the Impairment Related Work Expenses, these incentives only apply to beneficiaries who are self-employed. There are different work incentives available to those in wage employment. And third, these incentives are not mutually exclusive. A entrepreneur could use all of the incentives for the same work in the same month.

All of the work incentives are applied in the same manner. First, the dollar value of the incentive is determined. This amount is subtracted from the average monthly NESE to determine countable monthly income. The countable monthly income is then compared to SGA to determine eligibility for the cash benefit. Since the work incentives serve to reduce the monthly countable income before the SGA comparison, identifying and utilizing all possible incentives can have significant impact on the overall benefits picture. We’ll see some examples of this in upcoming slides, but it’s important to note that assisting beneficiaries to identify, track, and report work incentives is a critical piece of the support picture. All work incentives must be submitted to and approved by SSA before they will be included in the countable earned income calculation. CWICs, once again, will be an invaluable resource and should be included as team members.

Slide 15

Impairment Related Work Expenses (IRWEs)

▪ Must meet 3 criterion:

o Paid for out-of-pocket

o Related to disability

o Necessary for work

▪ Vast majority of IRWEs qualify as IRS allowable business expenses and are typically deducted when calculating net profit instead of being reported as IRWE’s

▪ Medical expenses/co-pays may be possible exception

▪ Value of IRWE deducted from average monthly NESE to determine countable earned income

In order to be counted as an IRWE, the expense must meet all of the following criteria: 1) the entrepreneur must pay for it out-of-pocket, 2) it must be related to the disability (though not necessarily the primary disability), and 3) the entrepreneur must need it in order to work.

Numerous expenses may count as impairment related work expenses including specialized transportation, attendant care services related to work, supported employment services (if the individual pays for these directly), medical devices/prosthesis, just to name a few. The trick with IRWEs and self-employment though, is that most IRWEs are also IRS allowable business expenses. If these expenses are claimed as business expenses, they are already being factored into the net profit, and therefore NESE, calculations so they cannot also be deducted as IRWEs. Generally speaking, it is better to claim all business expenses since it lowers the tax basis for the business, so if there’s a choice between business expense and IRWE, most entrepreneurs claim it as a business expense.

Even with self-employment, IRWEs might still be utilized, however. One potential broad category of IRWEs includes medical expenses. If entrepreneurs are paying co-pays for medications they need to work, for example, or having a wheelchair repaired to increase mobility and accessibility, these expenses typically would not be IRS allowable business deductions. (We always recommend checking with an accountant to verify this first though because you never know.) If not, the amount of the monthly expenses can be tracked and reported as an IRWE.

As stated previously, the monthly IRWE amount is deducted from average monthly NESE to calculate the countable monthly income. Sam, for example, runs a bicycle courier business and spends $200/month on medical co-pays. In 2010, he’s projecting average monthly NESE of $1100, which is above SGA. If Sam tracks and reports his IRWE, the $200 in out-of-pocket medical expenses will be deducted from his NESE, dropping his countable monthly income to $900 ($1100 NESE - $200 IRWE = $900), which is below SGA.

Slide 16

Unpaid Help

▪ Support with business received from family or friends at no charge

▪ Calculate value of unpaid help

▪ Deduct value of unpaid help from monthly NESE to calculate countable earned income

▪ Track and report all unpaid help to SSDI

Unpaid help can be another powerful work incentive. Many entrepreneurs, with or without disabilities, receive support from family, friends, and others in their network while they are getting their business off the ground (and even longer in many cases). An entrepreneur might have a family friend who is a lawyer, for example, and who is willing to assist with drawing up the business liability release for no charge. Or a parent or spouse might assist with marketing and production. If the business does not pay for these expenses, they cannot be deducted as business expenses in the business financials. However, they can be deducted in the calculation of countable earned income for SSDI because the SSDI program recognizes that the impact of this “unpaid help” is to artificially inflate the net profit of the business.

The first challenge with the unpaid help incentive is to calculate the value of the help. In the example above, where a lawyer supports the business by drawing up the liability release, the help can be documented at the lawyer’s hourly rate multiplied by the number of hours he worked on the agreement. If the person (or business) providing the service is willing to create an invoice and indicate on it that the work was “pro-bono” or no charge was applied, this invoice can be submitted to SSA. In the instance where a family member or friend is assisting with marketing or production, the entrepreneur must first identify how much he/she would need to pay someone else to provide the service. So if it was determined that the going rate for marketing in the entrepreneur’s community was $15/hour, the family member could document the number of hours worked per month, with a brief description of the services provided, and the entrepreneur could submit this to SSA along with the total monthly tally for the unpaid help (e.g., $15 x the number of hours worked).

Unpaid help follows the same formula as an IRWE in the countable earned income calculation. The total monthly unpaid help amount is subtracted from average monthly NESE to determine the countable monthly earned income. The countable monthly earned income is then compared to SGA to determine eligibility for the SSDI cash benefit.

There is no standard form for reporting unpaid help. We have included a sample form with the materials for this week, but entrepreneurs and team members should feel free to adjust as needed. All unpaid help must be tracked and reported to the SSDI program.

Slide 17

Unincurred Business Expenses

▪ 2 Types:

o Another person or entity pays

o No person or entity specifically incurs

▪ If another person/entity pays, can be deducted at full value or depreciated

▪ Can have significant impact on countable earned calculation

The final SSDI work incentive is unincurred business expenses. An unincurred business expense can occur in one of two ways: 1) another person or entity, other than the business itself, pays for a business expense, or 2) no person or entity specifically incurs the expense, but provides it to the business free or at a reduced charge.

One common example of the first type of expense, where another person or entity pays for an expense, occurs when a state VR agency pays for start-up or initial operating expenses. The business is not paying for the expenses, so they cannot be deducted as business expenses on the business financials. The SSDI program once again recognizes that this has the effect of artificially inflating the business net profit though, so SSDI allows these expenses to be documented and deducted as unincurred business expenses.

Entrepreneurs have the option of deducting expenses paid for by another entity in one of two ways. They can either be deducted at full value in the month they were purchased, or, in the case of larger purchases of items or equipment, they can be depreciated over the useful life of the equipment. If the state VR agency paid for the business’ electric bill for the months of January-March, for example, the actual amount paid by VR could be deducted for each month. If the VR state agency purchased a $6000 copier, and an accountant estimated the useful life of the equipment at 24 months, the depreciation method would probably make more sense. In this case, the entrepreneur could deduct $250/month in unincurred expenses for 24 months (because $6000 / 24 = $250). As you can imagine, unincurred business expenses can have a particularly significant impact on the reduction of countable earned income.

Slide 18

Unincurred Business Expenses, cont.

▪ No person or entity incurred, but expense item is provided at no cost or reduced cost

▪ All unincurred expenses must be tracked and reported

o Name of agency paying or providing

o Relationship to entrepreneur

o Reason items were paid for or provided

o Full account of items, amounts, and timeframes

▪ Sample tracking form included with supplementary materials

The second type of unincurred business expenses occurs when a person, agency, or entity provides something to the business for free or at a reduced charge. An entrepreneur providing a pony ride service, for example, may be offered stable space at a reduced charge for the first year of business. Or a community agency might allow a new business to use office space at no charge for a period of time. Even though no other business is actually paying for these expenses outright, they are essentially absorbing the associated costs or loss, and therefore these can be counted as unincurred business expenses. In the examples described a few seconds ago, the entrepreneur could track and deduct the amount of rental reduction- in the case of the stable or the full rent- in the case of the free office space on a monthly basis for as long as they applied.

SSA requires the following information for tracking and reporting unincurred business expenses: 1) the name of the agency or entity paying for or providing the expenses, 2) the relationship of that person or agency to the entrepreneur, 3) the reason the items were paid for or provided, and 4) a full account of the items/expenses provided, the amounts, and the associated timeframes. A sample tracking form for unincurred business expenses has been included with this week’s materials.

Slide 19

SSDI Work Incentives Example: Kate

▪ Virtual Secretary business: $1550 average monthly NESE 2010

▪ TWP ended in March 2009 (not reached cessation yet)

▪ Mom provides 30 hours/month of marketing- valued at $10/hour

▪ VR provided equipment- depreciated at $200/month in 2010

▪ Medical co-pays: $75/month

So let’s take a quick look at how using the SSDI work incentives can impact an entrepreneur’s benefits. Kate runs a virtual secretarial business that generates average monthly NESE of $1550 for 2010. She finished her TWP in March of 2009 and has not reached cessation.

Kate’s mom spends 30 hours/month doing marketing for the business. Kate’s business cannot yet afford to pay her, but Kate has researched it and knows that she would have to pay someone else in her area at least $10/hour for the services her mother provides.

Kate received support for start-up expenses from her state VR agency. This included a computer and associated software that will be depreciated at the rate of $200/month throughout 2010.

Kate also has medical co-pays that total $75/month. She pays for these out-of-pocket and does need the medicine and treatment in order to continue to run her business.

It’s now January 2010, and Kate is trying to assess what will happen to her $700 SSDI check for this year.

Slide 20

Calculating Kate’s Countable Income

▪ $1550 in average monthly NESE over SGA

▪ Calculate impact of work incentives

$1550 (average monthly NESE)

- 300 (unpaid help)

$1250

- 200 (unincurred expenses)

$1050

- 75 (IRWE)

$975 (countable earned)

▪ $975 (countable earned) less than SGA

We know a few critical points based on Kate’s summary. First, since she used her 9th TWP month in March 2009, we know that she is now in her Extended Period of Eligibility. (Remember, the EPE begins the very next month following the 9th TWP month and continues for the next 36 consecutive months). Since she’s in her EPE, we also know that the average monthly NESE figure of $1550 will be the starting point for the earned income calculation AND that the work incentives can be applied.

Kate’s average monthly NESE of $1550 is well over the 2010 SGA amount of $1000. Many entrepreneurs would automatically assume that this means loss of cash benefit, but let’s look more closely at what happens when the work incentives are applied.

Kate’s first work incentive is unpaid help. Her mother is assisting her with marketing, valued at $300/month (30 hours/month x $10/hour). When we subtract this $300 from the $1550 in average monthly NESE, her countable income is reduced to $1250/month. This amount still exceeds SGA.

The next incentive is an unincurred business expense. The items VR purchased are being depreciated over 2010 at $200/month. When we add this deduction, Kate’s countable monthly income is further reduced to $1050, which still exceeds SGA.

When we deduct her final incentive, however, the $75/month IRWE due to medical co-pays, her countable income decreases to $975/month. This is under SGA, and Kate can anticipate remaining eligible for the full $700 SSDI cash benefit as a result. Since this calculation is based on average monthly NESE and because her monthly work incentive amounts are not projected to change during 2010, Kate can anticipate remaining eligible for her cash benefit throughout 2010.

I’ll leave you with one final thought… Maintaining the SSDI check forever and ever is not the end all, be all. Keeping earnings under SGA forces an artificial ceiling on earnings and frequently ensures a lifetime of poverty. If we can support entrepreneurs to identify business concepts that have the potential to create a solid and ongoing income stream, and utilize incentives to maximize earnings while maintaining access to benefits, there may come a point in time where the numbers show that holding on to the cash benefit is actually limiting income. Entrepreneurs may in fact choose to let go of the cash benefit in these instances, particularly if the business has demonstrated stability over a period of time. [pic]

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