SI 00820: Earned Income
TN 48 (11-08)
Citations:
20 CFR 416.1110 , 416.1111 ; 404.1051 ; 404.1008
A. Definitions
1. Wages
Wages are what an individual receives (before deductions) for working as someone else's employee.
NOTE: Under certain conditions, services performed as an employee are deemed to be self-employment rather than wages (e.g., ministers, real estate agents, newspaper vendors, etc.). See RS 02101.010E. An S Corporation may pay wages to an individual that performs work-related services and is considered an employee of the S Corporation (i.e. President), even if they are a shareholder of the S Corporation.. See RS 01802.015 for more information on S Corporations.
2. Statutory employees
Statutory employees are independent contractors under common-law rules and are treated by statute as employees. However, their earnings for SSI purposes are treated as net earnings from self-employment for taxable years beginning January 1, 2001.
There are four categories of statutory employees:
Agent drivers or commission drivers;
Certain full-time life insurance salespeople (RS 02101.355);
Full-time traveling or city salespeople; and
Home workers.
NOTE: If an individual is considered a statutory employee, the employer will check a block “statutory employee” on the Form W-2 to indicate his or her status. The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Statutory employees report wages and expenses on Schedule C or C-EZ. They do not file Schedule SE.
B. Policy
1. Relationship to Title II definition
Wages are the same for supplemental security income (SSI) purposes as for the annual earnings test in the Social Security retirement program.
See RS 01402.001 through RS 01402.510 for possible wage exclusions.
EXCEPTION: The earnings of statutory employees are considered earnings from self-employment for SSI purposes only. See SI 00820.100B.3.
2. Kinds of wages
Wages may take the form of:
Salaries — These are payments (fixed or hourly rate) received for work performed for an employer.
Commissions — These are fees paid to an employee for performing a service (e.g., a percentage of sales). See RS 01401.160.
Bonuses — These are amounts paid by employers as extra pay for past employment (e.g., for outstanding work, length of service, holidays, etc.). See RS 01401.150.
Severance pay — This is payment made by an employer to an employee whose employment is terminated independently of his wishes or payment is made due to voluntary early retirement. See RS 01401.180.
Military basic pay — This is the service member's wage, which is based solely on the member's pay grade and length of service.
See SI 00820.400.Special payments received because of employment —These are items such as vacation pay, advanced/deferred wages, etc.
Food, clothing, shelter or other items provided instead of cash (in-kind earned income) — See SI 00820.010 and RS 01402.240.
Payments to an inmate of a public institution if an employer/employee relationship exists — See SI 00520.010.
Sick pay received within 6 months after stopping work, which is not attributable to the employee's contribution — See SI 00820.005B.1. and RS 01402.090.
AmeriCorps and National Civilian Community Corps Payments— See SI 00830.537.
3. Statutory Employees
a. For taxable years which begin 01/01/01 or later
For SSI purposes only of determining earnings, statutory employees are considered self-employed. Their net earnings from self-employment (NESE) are counted in determining SSI eligibility and benefit amount. The NESE may be found on Schedule C or C-EZ of their income tax return. On a statutory employee's W-2, federal taxes are not shown as being withheld. See SI 00820.200 for policies and procedures for NESE.
b. For taxable years prior to 01/01/01 or earlier
The earnings of statutory employees are considered as wages in determining SSI eligibility and benefit amount.
4. When to count
Wages for each month count at the earliest of the following points:
when they are received, or
when they are credited to the individual's account, or
when they are set aside for the individual's use (i.e., the employer sets aside the wages for payment at a future date as requested by the employee (SI 00820.115B.2.b.)).
C. Procedure
1. Assumption
Absent evidence to the contrary, (e.g., statutory employees) if FICA taxes have been deducted from an item assume it meets the definition of wages. See third bullet.
If FICA taxes have not been deducted from an item, determine if it is wages per RS 02505.001 through RS 02505.060 and SI 00820.102.
If Social Security taxes equal to 7.65% (6.2% (FICA) and 1.45% (Medicare)) have not been deducted from gross wages, determine if a cafeteria plan is involved per SI 00820.102, RS 01402.030, and RS 01402.036.
IMPORTANT: For calendar years 2011 and 2012 only, if Social Security taxes equal to 5.65% (4.2% (FICA) and 1.45% (Medicare)) have not been deducted from gross wages, determine if a cafeteria plan is involved per SI 00820.102, RS 01402.030, and RS 01402.036
2. FICA not withheld from covered wages
If FICA taxes were not deducted from covered wages, develop the title II coverage issue per RS 01405.001.
D. References
SI 00830.530 Work related unearned income,
SI 00810.030B.2. Advance dated checks,
SI 00820.115 Wage advances and deferred wages,
RM 10220.370 How to process SSN requests involving scrambled earnings,
RS 02505.001 Annual earnings test,
SI 00830.100 Expenses of obtaining income,
RS 02505.240 Summary of how major types of remuneration are treated,
SI 00820.200 Net Earnings from self-employment,
RS 02101.300 Statutory employees,
RS 02101.355 Full-Time Life Insurance Salespeople
SI 00815.270 Income Tax Refunds
SI 00815.350 Proceeds of a Loan