Hi Larry, I am a retired 63 year old dad receiving a Social Security Survivor’s benefit as a surviving parent caring for my disabled adult son. This year I began receiving payments through a Washington State Medicaid Waiver program as compensation for caring for a disabled person in my home. These are known as “difficulty of care” payments, and are exempt from federal income tax under IRS Notice 2014-7. The IRS also treats these payments as unearned income. In addition, they are exempt from FICA/FUTA taxes because I am a parent providing care to my adult child. Therefore, I am not earning additional credits on my own SS record. Since I am under my FRA, a representative at my local Social Security office tells me these payments will count against the SS earnings limit, which is $17,640 for 2019. As a result, my SS Survivor’s benefit would be substantially reduced as I will be well over the income limit. I maintain this unearned income should not count because it is really reimbursement for the expense of keeping my son at home. Is the SS representative correct? What is my best argument if I need to appeal? Thanks… Craig
As long as the payments you refer to are not considered as wages or self-employment income, then the payments would not count as earnings for purposes of the Social Security earnings test (https://www.ssa.gov/planners/retire/whileworking.html). If the payments were considered as wages, you would receive a W-2 form and the agency making the payments would withhold the appropriate taxes.
If you don't receive a W-2 form then the only other way that the income could be considered as earnings for purposes of the earnings test would be if the payments were classified as self-employment earnings, in which case you'd be required to pay self-employment taxes on the income. I'm not an expert on tax rules, but if you've checked with the IRS and they've instructed you not to report the income as self-employment then the income won't count for earnings test purposes as long as you don't get a W-2 form.
Social Security wouldn't withhold your benefits unless you tell them that you're going to have earned income in excess of the earnings test limit, or if you receive a W-2 form or report self-employment earnings that are in excess of the limit. If they are withholding your benefits and If you won't be having earnings in excess of the limit, they should resume your payments if you simply call them and report that you won't have excess earnings this year.