SI 00820.560: Allocating Work Expenses

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~~Effective Dates: 03/28/2018 - Present~~
Effective Dates: 04/09/2018 - Present
TN 24 (03-95)
SI 00820.560 Allocating Work Expenses
A. Policy — Effective Dates
1. IRWE
For IRWE, the instructions in this section are effective for payments made after November 30, 1980.
2. BWE
* For BWE, the instructions below that pertain to the proration of expenses paid prior to starting work or after stopping work are effective for payments made on or after July 1, 1987.
* Prior to July 1, 1987, expenses were deducted only when paid. Expenses paid prior to starting work or after stopping work were not deductible.
B. Procedure — Expenses Paid While Working
1. Expenses Paid Prior to Receipt of Income
Deduct (or begin allocating) the amount paid in the first month income is received as described in DI 10520.030D.
2. Monthly Recurring Expenses
* No Downpayment involved
Deduct the amount of a monthly recurring work expense in the month in which the expense is paid.
* Downpayment involved
* Have the individual decide whether the downpayment is to be deducted in the month paid; or prorated over a consecutive 12-month period.
* If the downpayment is to be deducted in the month paid, deduct the regular recurring monthly expense when paid.
* If the downpayment is being prorated, follow the instructions in DI 10520.030B.4.
3. Other Recurring Expenses
* Less frequently than monthly
Have the individual decide whether the work expense is to be deducted in the month paid or prorated for the months in the billing period.
* Daily/Weekly/Biweekly
* Use the submitted receipts, bills, etc., in conjunction with any allegation obtained per SI 00820.550C. to determine the number of days the expense is paid each month; and whether the expense fluctuates or remains the same.
* Multiply the amount of the expense by the number of days the expense is paid each month if the expense remains the same.
* Add the individual amounts paid in each month if the expense fluctuates.
NOTE: If the computation is being based on the individual's allegation, assume that the expense remains the same.
4. Expense Is One-Time Payment
Follow the instructions in DI 10520.030B.3. and have the individual decide whether the work expense is to be:
* deducted entirely in the month of payment; or
* prorated over a consecutive 12-month period beginning with the month of payment.
5. Self-Employment
Deduct the work expenses related to a self-employment activity for an individual who is blind and self-employed, provided the expenses were not used to compute the net earnings from self-employment (NESE). If it is to the person's advantage, prorate the work expenses over all the months of the tax year; otherwise, follow 1-4 above, as appropriate.
C. Procedure — Expenses Paid Prior to Work
Follow the steps below, which summarize the instructions in DI 10520.030C., whenever a work expense was paid before work began:
STEP
ACTION
1
Determine whether the item that was purchased:
* is work-related; and
* is durable (see DI 10520.030C.1. for the definition of durable items); and
* had a payment made on it in the 11-month period immediately preceding the first month of employment.
2
If the item meets all the criteria in step 1, go on to step 3. If not, stop. The expense cannot be deducted.
3
Determine the total amount paid towards the item during the 11 months preceding the month that work began.
4
Determine the deductible portion according to the following chart.
No. of Months Prior to Work That First Payment is Made
Deductible Portion of Payment
1
11/12 (.916)
2
5/6 (.833)
3
3/4 (.750)
4
2/3 (.666)
5
7/12 (.581)
6
1/2 (.500)
7
5/12 (.415)
8
1/3 (.333)
9
1/4 (.250)
10
1/6 (.166)
11
1/12 (.083)
NOTE: See SI 00820.560E. for an example of how to use this chart.
5
Have the individual decide whether the deductible portion from step 4 is to be allocated:
* only to the first month that earned income is received; or
* over a consecutive 12-month period beginning with the first month that earned income is received.
NOTE: The deductible amount is in addition to amounts actually paid after beginning work.
D. Procedure — Expenses Paid After Work Stops
1. Expense Paid Before Earned Income Stops
Deduct a work expense that is paid in a month after work has stopped from earned income received in a month after work has stopped only when:
* the income is based on work activity (e.g., not income received as a silent partner in a business); and
* the work activity was performed in a period when the individual required the item or service as explained in DI 10520.030E.2.b.
2. Expense Paid After Earned Income Stops
Deduct the work expense from the After Earned earned income received in the last Income Stops month of work when:
* the work expense is paid in a month after the individual last worked and received earned income; and
* the payment was for an item or service used while working.
E. Procedure — Expenses Paid By Credit Card
* Treat a credit/charge card purchase as a nonrecurring expense as described in DI 10520.030B.3. and follow the appropriate instructions in SI 00820.560B.4, SI 00820.560C. or SI 00820.560D.
EXCEPTION: You may treat the actual payments as a recurring expense per SI 00820.560B.2. through SI 00820.560B.3. when the IRWE was the only charge on the account during the time the charge was being paid; i.e., there was a zero balance when the IRWE was charged and no other charges were made before the payments were completed.
* Apply the credit card's annual interest rate to the cost of the IRWE purchase when:
there is already a balance on the account when the IRWE is purchased;
another purchase is made before the IRWE charge is paid off; or
there is the likelihood of another purchase before the IRWE charge is paid off.
* Deduct the IRWE charge amount plus the calculated interest.
F. Procedure — Documenting Allocation Decision
Obtain a signed statement or complete an R/C to document the individual's decision regarding the allocation of expenses to one month or a 12-month period only if it would not be discernable from the file that the method of allocation is advantageous to the individual.
G. Examples
1. IRWE Charged While Working
Mr. Applegate, a disabled SSI recipient who is working, charges an IRWE which costs $240 (i.e., purchase price plus applicable tax) on a credit card that has an annual interest rate of 18%. Because there was already a balance on the account prior to the IRWE purchase, you treat the IRWE as a nonrecurring expense.
You calculate the interest on the IRWE purchase to be $43.20 ($240 × 18%). You determine the deductible IRWE amount to be $283.20.
You ask Mr. Applegate whether he wants the IRWE amount deducted entirely in the month charged or prorated over a consecutive 12-month period. He decides to have it prorated. You deduct $283.20/12 ($783.20/12) a month as IRWE for 12 consecutive months beginning with the month the IRWE was charged.
You ask Mr. Applegate whether he wants the IRWE amount deducted entirely in the month charged or prorated over a consecutive 12-month period. He decides to have it prorated. You deduct $23.60/12 ($283.20/12) a month as IRWE for 12 consecutive months beginning with the month the IRWE was charged.
2. IRWE Charged Before Working
Similar circumstance to the above example, except that Mr. Applegate charges the IRWE on his credit card 6 months before he begins working.
You use the chart in SI 00820.560C. to determine that only $141.60 is deductible as IRWE (one-half of $283.20)
You ask Mr. Applegate whether he wishes to have the IRWE deducted in the first month he receives earned income or during the 12 month period at $11.80 a month ($141.60/12). He elects to have it deducted in the first month.

POMS Reference

SI 00820.560: Allocating Work Expenses