Is vacation pay considered earned income for social security disability

I. A Recap of Return to Work Under SSDI

A Nine-Month Trial Work Period (TWP) is provided to all SSDI beneficiaries.  It allows the beneficiary to work, at any level of earnings, for nine months during which SSDI payments continue.  The TWP is completed when the beneficiary achieves TWP-level earnings ($880 gross per month in 2019) in nine separate months during a period of 60 consecutive months.

The 36-month Extended Period of Eligibility (EPE), often called the Re-Entitlement Period, begins immediately after the ninth TWP month.  It runs for 36 consecutive months whether the beneficiary is working or not.  When the beneficiary works during the EPE:

• The first month of Substantial Gainful Activity (SGA)-level work (more than $1,220 of countable earnings or $2,040 for the blind in 2019) triggers a “Cessation Month.”
• The beneficiary is then eligible for a three-month Grace Period and will receive SSDI payments for the Cessation Month and the next two months.

Month-by-month SSDI eligibility after the Three-Month Grace Period.

• For the remainder of the EPE, SSDI eligibility is determined month-by-month.
• If countable earnings are at or below the current year’s SGA level, the beneficiary is eligible for an SSDI payment that month.
• If countable earnings are more than the SGA level, the beneficiary is not eligible for an SSDI payment for that month (i.e., benefits are “suspended”).

SSDI Termination if SGA-level work after 36th EPE month.

• If a beneficiary experienced a Cessation Month and Grace Period during the 36-month EPE, the first month of SGA-level countable earnings after month 36 results in an SSDI “termination.”
• If there was no Cessation Month within the 36-month EPE, the first month of SGA-level earnings after the EPE will trigger a Cessation Month and three-month Grace Period during which SSDI payments will continue.Thereafter, the next month of SGA-level countable earnings will result in an SSDI termination.

Returning to payment status after SGA-related termination.  This can occur:

• Through a new SSDI application if the beneficiary no longer has SGA-level earnings; or
• Through the Expedited Reinstatement (EXR) provisions, if the beneficiary is no longer earning at the SGA level and other EXR criteria are met.See Module 9 for a full explanation of the EXR provisions.

The Extended Period of Eligibility provides a 36-month safety net for any young person who receives SSDI and works.  If SSDI was suspended due to SGA-level earnings, benefits are restored month-by-month whenever countable earnings are below the SGA level.

II. How Reductions for PTO are Calculated

Since reductions to countable earnings based on PTO are often overlooked, we lay out SSA’s full PTO policy and then provide details on the most common PTO examples.

SSA’s PTO Policy.  In determining whether monthly earnings are more than the SGA threshold, SSA will not count earnings if no work was performed to generate them.

“When evaluating earnings for substantial gainful activity purposes, consider only earnings derived from actual work activity for the month under consideration. If an individual receives sick or vacation pay for non-work days in a particular month, that pay should not be considered countable income for that month. Rather, the question is what work activity did the individual actually perform in the given month and what earnings did the individual actually receive for that activity.  Only the earnings paid as a result of work activity should be used in determining if the individual has engaged in SGA in a particular month.”  SSA Program Operations Manual Systems (POMS) DI 10505.010 C (emphasis added).

Although the quoted policy only references sick and vacation pay, this policy should apply equally to personal time, holiday pay, and the other examples given below in which an individual is paid for time when not working.

Vacation Time.  Many employers provide paid vacation days.  Full-time employees may get a set number of weeks, days, or hours, often based on years of employment with the employer.  Many employers prorate vacation time for part-time employees.  Some employers require that vacation time be taken in full weeks; others allow flexibility to take off individual days and may allow employees to take one or more hours at a time.  Most employers require prior approval for significant use of vacation time.

Personal Time.  When made available, this is typically given as a few days per year.  Many employers give employees greater flexibility in taking this time off on short notice.

Holidays.  The number of paid days or partial days off will vary by employer.  Typical holidays may include New Year’s Eve and New Year’s Day, Martin Luther King Day, President’s Day, Memorial Day, the Fourth of July, Labor Day, Columbus Day, Election Day, Thanksgiving, Christmas Eve, and Christmas Day.

Sick Time.  Many employers offer several days per year as paid sick time.  Some employers allow sick time to be used a few hours at a time.  Some employers allow the use of sick time when the employee is not ill (e.g., to attend a medical appointment, to attend a family member’s medical appointment, or to stay home with a sick child).  When an employee has a prolonged illness, some employers allow for additional time to be taken from an employee sick-time bank.

Other Examples of PTO.  This will vary by employer and could include bereavement time, upon the death of a family member; pay during weather-related closures of the place of employment (e.g., during snow storms, hurricanes); and pay when the place of employment is closed due to things like non-working heat.

With all these examples, if the SSDI beneficiary receives pay that covers non-working days or hours, that pay is not counted when measuring countable earned income.

SSA’s policy states that “only the earnings paid as a result of work activity should be used in determining if the individual has engaged in SGA in a particular month.”  This means that Paid Time Off for hours or days when the SSDI beneficiary did no work will not count in determining whether the beneficiary had earnings above the SGA level.

III. Examples of SSDI Payment Months After Reducing Countable Earnings Below the SGA Level through PTO

Once the beneficiary has a Benefit Cessation month and a three-month Grace Period, within the 36-month EPE, eligibility for SSDI will be determined in the remaining EPE months based on whether countable wages are: at or below the SGA level (eligible for SSDI); or more than the SGA level (not eligible for SSDI).

The examples below involve the use of PTO that results in countable earnings that are at or below the SGA level.  Each example involves Nadia, age 21, who started receiving SSDI Childhood Disability Benefits in 2016 at age 18 on the earnings record of her deceased father.  She has worked the same job since early 2017:

• She completed her TWP in December 2017 and immediately began her EPE in January 2018.
• January 2018 was Nadia’s Benefit Cessation Month, as her first month of SGA during her EPE. She continued SSDI payments for the month of January through March 2018 (her three-month Grace Period).
• Since countable earnings were well over the SGA level for the remainder of 2018, she was not eligible for an SSDI payment between April and December 2018.

The examples below assume Nadia’s gross pay was a consistent $1,430 for all months in 2019, with any day off valued at $65.  The SGA level of $1,220 for the non-blind in 2019 applies to each example.

Example 1, Holiday Pay, Sick Pay and Snow Day.  In January 2019 (Nadia’s 13th EPE month), she has one paid holiday, two paid sick days, and one paid snow day when her employer’s office is closed but she is paid under the employer’s policy.  The value of her PTO is $260 (4 x $65), reducing her countable earnings to $1,170 for the month ($1,430 – 260).  Since countable earnings are less than the SGA level of $1,220 for 2019, January will be an SSDI payment month for Nadia.

Example 2, Paid Vacation Week.  In April 2019, Nadia takes a one-week vacation and is paid for that week giving her PTO valued at $325 ($65 x 5) and reducing her countable earnings to $1,105 for the month ($1,430 – 325).  Since countable earnings are less than the $1,220 SGA level, April will be an SSDI payment month.

Example 3, Holiday Pay, Vacation Days, and Sick Pay Hours.  During early September Nadia is paid for Labor Day and the two following vacation days to give her a five-day weekend, with this PTO valued at $195 ($65 x 3).  Later that month she is paid for a half day of sick time when she is off for emergency dental work (employer allows sick time to be used for medical/dental appointments), with this PTO valued at $32.50 (one half of $65).  Since countable earnings are now $1,202.50 ($1,430 – 227.50), less than the SGA level of $1,220, September will be an SSDI payment month.

We assume that Nadia’s countable earnings were more than the SGA level during most of the remaining nine months of 2019, making those SSDI nonpayment months.  However, we will want to look closely at November and December as many employers will provide one or two paid holidays for Thanksgiving and the day after, with similar holiday pay for Christmas and possibly Christmas Eve.

When determining the value of Paid Time Off in a month, SSDI beneficiaries must count all types of PTO and assign dollar amounts to both full days and partial days when paid for periods during which the beneficiary was not working.

IV. Strategies for Documenting PTO and Submitting Proof of PTO to SSA

The challenge for beneficiaries with PTO during the EPE is twofold: they need a system for keeping track of PTO; and they need a system for providing SSA with documentation of PTO use when it is likely to result in countable wages that are at or below the SGA level.

Strategies for Keeping Track of PTO Use

• Retaining Wage Stubs.  Many employers use a payroll service that tracks PTO use on pay stubs issued with the employee’s paycheck.  If this is the case, the beneficiary should retain copies of all pay stubs for later submission to SSA.
• Printing and Retaining Electronic Wage Statements: Some employers do not issue hard copy pay stubs.  Instead, they provide access to the pay stub on a website where it can be reviewed and printed.  If this is the case the beneficiary should print or arrange to print each pay stub for later submission to SSA, particularly if this electronic pay stub documents PTO use.
• Ask for Employer Confirmation on PTO Use:  This may be needed because PTO use does not appear on the pay stub; the pay period may include parts of two different months and SSA will need to document the month in which PTO was used; or the employer’s payroll system may not document less common forms of PTO, such as bereavement days or paid snow days.  It is always best if the employer’s PTO statement breaks down PTO use to specific dates, with the amount of PTO used on each date.
• Beneficiary Records on Use of PTO:  SSA always prefers one of the three methods of PTO documentation suggested above.  If that documentation is not available, the beneficiary’s own record of PTO use may suffice.  To that end, many benefits planners encourage SSDI beneficiaries to document their use of PTO time, preferably on a dedicated calendar or appointment book.  When needed the beneficiary can use their records to create a written accounting of PTO use for submission to SSA.

Strategies for Providing PTO Documentation to SSA

If a youth SSDI beneficiary is working with a Benefits Planner/Work Incentives Counselor, that person should be able to assist the beneficiary (and his or her parent(s) if the beneficiary agrees) in developing the best strategy for communication with the local SSA office to report PTO.

Some recommendations for the report of PTO to SSA:

• Create a model cover letter/document that references the SSA policy quoted above (e.g., “POMS DI 10505.010 C. provides that …”) and that provides a monthly list of PTO use, by date, and its dollar value.
• When use of PTO will go beyond the vacation and sick time categories referenced in the POMS, point out that SSA policy in the referenced POMS makes clear that pay received for any non-working days or hours should not be included in earnings for SGA purposes.
• Provide actual documentation of PTO if available (e.g., wage stubs, electronic pay statements, etc.).

Since SSA has not highlighted the use of PTO to reduce countable earnings in its many web-based materials on how wages are counted for SGA purposes, communication to SSA on PTO use should always refer to SSA’s PTO policy, POMS DI 10505.010 C.

Beneficiaries Must Also Make SSA Aware of Reductions from Countable Earnings for Impairment Related Work Expenses, Subsidies and Special Conditions

This module has focused on the use of PTO to reduce countable earnings during the EPE. SSDI beneficiaries will also want to document, month-by-month, any impairment related work expenses, subsidies and special conditions that can also be a basis for reducing countable earnings.  Those topics are covered in Module 5 and Module 6.