By Lauren Pierucci | Elder Law Attorney
There are three (3) common types of public benefits payable to individuals that are often confused and misunderstood: Social Security income, Supplemental Security Income, and Social Security Disability Insurance. Each of these income sources can help provide income to elderly and/or disabled individuals, but each has its own criteria for eligibility.
This article aims to explain the main highlights of each benefit as well as the main differences between them.
Social Security Income, aka Old-Age, Survivors, and Disability insurance (OASDI)
The type of income benefit most commonly known to be “Social Security” retirement income is technically called Old-Age, Survivors, and Disability insurance or “OASDI.”
OASDI was established in the 1930s through President Franklin D. Roosevelt’s administration. It was created to act as a form of social insurance, meant to be payable upon retirement. Even at that time, however, the benefit was only meant to supplement, not supplant, retirement income altogether.
Today, workers contribute towards the Social Security program through deductions from earned wages. Even though one’s contributions are not necessarily earmarked and saved specifically for each person, the Social Security Administration (“SSA”) keeps track of earning records for all workers and the more one contributes to the program, the more one may be eligible to receive later in life. Starting at age 25, individuals begin to receive annual earning records from the SSA, identifying potential earnings and income based on then-current work history.
To be eligible for OASDI benefits, one must have earned enough covered[1] “work credits” or “quarters of coverage,” during his or her lifetime. The number of “work credits” one is eligible for each year is based on earnings throughout the year. The amount that must be earned to make up a “work credit” varies each year, as determined by the Social Security Administration Commissioner. In general, when one has earned at least forty (40) “work credits,” he or she is fully insured and able to claim full income and Social Security benefits upon attaining retirement age. There are no additional means tests or eligibility requirements for OASDI.
Currently, the full retirement age is 66 and 2 months, but will raise to 67 for those born in 1960 or later. One can defer claiming OASDI benefits, but at age 70, the full retirement age, there is no longer any additional earning benefit in delaying claiming benefits. For this reason, most individuals who have delayed taking benefits often begin to claim their benefits upon reaching age 70. Raising the retirement age or placing additional restrictions on Social Security income is an ever-constant political and social discussion and continues to be a strong theme within any public office election cycle.
Once an individual elects to begin receiving OASDI income, benefits are issued each month, and are subject to cost of living adjustments (COLA), as time goes on. Usually deducted from one’s OASDI income are the premiums associated with Medicare, the government-sponsored health insurance program. The amount of Medicare deductions withheld from one’s OASDI check depends on the individual’s participation in the various “parts” of Medicare, as well as the individual’s income limit. The most common deductions seen on a regular basis are for Medicare Part A (“hospital insurance”) and Medicare Part D (“prescription drug insurance”).
Each year, usually in November, the Social Security Administration issues an Award Letter to each OASDI recipient, notifying them of any changes in gross income amounts and/or Medicare deductions for the following calendar year. One can also request this information directly from the local Social Security Administration office.
OASDI income benefits are partially taxable under federal laws, but are subject to calculations by the Internal Revenue Service (IRS) which take into consideration all of an individual’s income sources and compares the total income to the relevant income tax brackets to determine how much of the OASDI benefit is taxable to each individual. In general, if one’s only source of income is OASDI, he or she will not have to pay federal income tax on the benefits.
OASDI benefits may be received by a surviving spouse or child of a deceased worker, in various circumstances. This is commonly seen in situations where a surviving spouse is able to receive an increased amount of OASDI income, based on his or her deceased spouse’s income amount, who had a longer or more profitable covered work history.
Supplemental Security Income (“SSI”)
A separate, yet common public benefit income source is Supplemental Security Income (“SSI”). Unlike OASDI Social Security income, which was meant to be a more universal social insurance program, SSI eligibility is limited to those who are blind, elderly, or disabled, and is meant to provide a baseline income to those not able to maintain gainful employment. While OASDI is funded by payroll withholdings, SSI is funded by the United Stated Treasury.
The Supplemental Security Income program is means-tested, meaning that there are asset and income caps set on benefit recipients. In general, SSI eligibility is limited to those having no more than $2,000 in countable assets. Countable assets generally include cash and other assets that are easily converted to cash. There are some assets that are considered to be exempt, and thus do not count against one’s $2,000 asset limit, such as one’s primary residence that he or his spouse own, one vehicle, and household goods and personal items.
The other eligibility requirement for SSI relates to one’s income. Upon applying to receive SSI benefits, one must be able to show that his or her total income from all sources does not exceed the maximum SSI benefit amount. This amount is subject to change each year, relative to the COLA increases that apply to Social Security benefits. In 2018, the maximum SSI amount for an individual is $750/month.
Some sources of income are exempt for SSI eligibility purposes, such as the first $20/month of most income, the first $65/month of wages and then one-half (1/2) of wages over $65, food stamps, more commonly known as SNAP benefits, and home energy and housing assistance benefits. However, other sources of income, even if not necessarily directly received, such as Medicare premiums, wage garnishments, and automatic withholdings are still countable and are thus considered when determining eligibility based on income.
One of the main aspects of SSI is its targeted purpose of providing monetary assistance for one’s food or shelter, which are considered basic necessities. If one receives assistance from any other source that either pays for or allows an SSI beneficiary to avoid paying for food or shelter needs, this is considered “In-Kind Support and Maintenance.”
In-Kind Support and Maintenance (“ISM”) is considered to at least partially satisfy one’s need for food and shelter, and thus receipt of ISM will result in a reduction in SSI benefits to the beneficiary. For example, if an SSI beneficiary lives in someone else’s house, and does not pay rent, he is determined to be in receipt of in-kind support and maintenance. This will cause his maximum SSI amount to be reduced dollar-for-dollar, up to one-third (1/3) of the total SSI amount. For this reason, if an SSI beneficiary has a special needs trust, it is sometimes advisable to allow for the individual to pay for his rent and food, as opposed to the trust, so the full amount of SSI can be payable.
There are other potential planning options for SSI beneficiaries, especially with regards to the asset limit. For example, ABLE Accounts are one fairly new and exciting tool that can be used to hold assets and income that would otherwise cause an SSI beneficiary to lose his or her benefits.
Social Security Disability Insurance
The third type of “social security” benefit is Social Security Disability Insurance (“SSDI”). SSDI benefits, like OASDI benefits, are based on one’s covered work history credits, as calculated by the Social Security Administration. What makes SSDI different from OASDI is that to receive SSDI benefits, one must be disabled, as defined by the SSA, or have a medical condition that causes the inability to work. Such disability must be permanent, in that it has or is expected to last at least one year, and makes one unable to be gainfully employed.
SSDI is not a means-tested benefit, in that there are no income or asset maximums one must maintain to receive benefits. Because SSDI benefits are based on Social Security earnings, they generally provide the beneficiary with more income than SSI would provide. While it is possible to receive both SSI and SSDI concurrently, this is usually only the case when the amount received from SSDI benefits is low enough to still allow the individual to qualify for SSI benefits. In that case, however, the asset and income requirements would also have to be met.
SSDI benefits may also be available for younger individuals who are diagnosed with a disability prior to reaching age 22. In these cases, since most young people do not have sufficient covered work credits, their SSDI benefits are based on the covered work history of their parents.
If looking into receiving SSDI benefits, it is often a good idea to file an “intent to file” with the Social Security Administration. This is less formal than the official application for benefits, but if filed, upon approval of benefits, they will be paid retroactively to the initial “intent to file” date.
Each situation is different and the type of public benefits one may be eligible to receive varies by individual. If you have questions about how public income benefits may affect you or a loved one, please contact our office to schedule a consultation with one of our experienced elder law attorneys.
[1] Not all employment is considered “covered,” that pays into the Social Security program. In general, participants in the Railroad Retirement program, federal government employees, and state and local government agency employees are not “covered” employees, and thus do not pay into the Social Security program. Work separate from these employments can be considered “covered,” which is why many non-covered workers will often take on second jobs throughout their lifetime to be eligible for OASDI income upon retirement.