2605. What is earned income?

Earned income consists of the following:

• Wages - Wages are what an individual receives (before any deductions) for working as someone else's employee. Wages include salaries, commissions, bonuses, severance pay, and any other special payments received because of employment. Wages may also include the value of food and shelter, or other items provided instead of cash. For example, shelter provided to an employee can be considered wages. This is considered in-kind earned income. However, for domestic or agricultural workers, in-kind pay is treated as unearned income.

• Net earnings from self employment

• Payments for services in a sheltered workshop, and

• Most royalties and honoraria.

2605.1 How is earned income counted?

We may count more earned income than the individual actually receives. We count more than the individual actually receives if amounts are withheld from earned income because of a garnishment, or to pay a debt or other legal obligation such as taxes, or to make any other payments such as for health insurance.

We count wages, services in a sheltered workshop, royalties, and honoraria at the earliest of the following points:

• when the individual receives them;

• 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 (e.g., deferred wages).

We count the current market value of in-kind earned income. If the individual receives an item that is not fully paid for and is responsible for the unpaid balance, only the paid up value is counted as income.

We count net earnings from self-employment on a taxable year basis. If the individual has net losses from self-employment, we deduct them from the individual's other earned income. We do not deduct net losses from the spouse's earned income. If the individual with a net loss does not have other earned income, no deduction is applicable. We do not deduct the net losses from the individual's or spouse's unearned income.

2605.2 What are earned income exclusions?

While it is necessary to ascertain the sources and amounts of all of an individual's earned income, we do not count all of it to determine whether the individual is eligible for extra help with prescription drug costs. These are earned income exclusions.

We do not count as earned income the following:

• Any refund of Federal income taxes received under section 32 of the Internal Revenue Code (relating to the earned income tax credit), and any payment received from an employer under section 3507 of the Internal Revenue Code related to advance payments of the earned income tax credit;

• The first $30 per calendar quarter of earned income which is received infrequently or irregularly;

• Any portion of the $20 per month general income exclusion which has not been excluded from the unearned income of the individual (or of the combined unearned income of the individual and living-with spouse) received in that same month;

• $65 per month of the individual's earned income (or the combined earned income of the individual and living-with spouse) received in that same month;

• Earned income used to pay impairment-related work expenses if the individual receives Social Security disability benefits not based on blindness and is under age 65;

• One-half of the remaining earned income that the individual (or the individual and living-with spouse) receives in that same month; and

• Earned income used to meet any expenses that are reasonably attributable to the earning of the income if the individual receives Social Security disability benefits based on blindness and is under age 65.

Last Revised: Apr. 18, 2006