Effective: May 1, 2010
20.25 - Earned and Unearned Income
Income is either earned or unearned. Earned income is cash or in-kind benefits people receive in exchange for work or service, including employment and self-employment. Unearned income is cash or in-kind benefits that people receive without being required to perform work or service. Different policies apply to earned and unearned income. For example, whether income is earned or unearned affects:
l Income exclusions.
l Income deductions and disregards.
This section lists common sources of earned and unearned income. It also explains how to treat costs incurred in securing unearned income.
Costs to Secure Unearned Income.
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Consider the following types of income as earned income for all health care programs unless unavailable or excluded under another policy provision.
1. Income received as an employee.
l Severance pay, if based on accrued leave time.
l Vacation pay.
l Sick pay, if based on accrued or earned time. (This is not the same as disability benefits).
Note: Use the gross income before any deductions in the income calculation.
l Compensation from the employer's vacation donation program, if paid and taxed in the same manner as the employee's usual pay.
l AmeriCorps State and National and AmeriCorps NCCC living allowances.
l Housing allowances paid in cash to members of the clergy, regardless of whether the cash payment is a reimbursement for housing costs already paid.
Note: Some clergy are self-employed.
l Wages paid to participants in programs carried out under the Community Service Employment Program (Title V of the Older Americans Act), which includes:
n Experience Works (formerly Green Thumb) program.
n The Senior Aides Program.
l Wages paid to participants in programs carried out under the National and Community Service Act of 1990 under Title I, which includes:
n Serve America.
n Higher Education Innovative Projects.
n Conservation and Youth Service Corps.
n National and Community Service Models.
Note: Benefits other than wages paid through these programs are unearned income. Exclude reimbursements for expenses. See Excluded Income.
2. Income from self-employment.
3. Other income received in exchange for work or service:
l Jury duty pay.
l Picket duty pay.
l Blood and blood plasma sales.
l Royalties and honoraria which result from the client's work or service.
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Consider the following types of income as unearned income for all health care programs unless unavailable or excluded under another policy provision.
l Spousal maintenance.
l Child support income.
l Annuity payments.
l Pension or retirement benefits from public or private sources, such as Railroad Retirement.
l Disability payments that are part of the employer’s benefit package. Medicare, Social Security, and other tax withholding from such payments do not change this designation as unearned income.
l Retirement, Survivor's, and Disability Insurance (RSDI).
l Supplemental Security Income (SSI).
l Unemployment Insurance.
Note: The first $2,400 of unemployment compensation received in 2009 is not taxed. Therefore, if using a 2009 U.S. Income Tax Return (1040, 1040A or 1040EZ) to determine income, add $2,400 to the amount of unemployment compensation reported on the tax return. Or, if no amount of unemployment compensation is listed on the Tax Return, use the full amount of unemployment compensation reported on 1099-G.
l Extended income support payments through the Trade Adjustment Reform Act of 2002 (TAA).
n These payments are available to certain workers participating in training when the job loss was related to foreign trade.
n Workers must exhaust regular Unemployment Insurance benefits before becoming eligible for TAA payments.
l Workers' Compensation.
l Veteran's Administration (VA) benefits. See Student Financial Aid for information on VA educational benefits.
l Trust disbursements.
l Severance pay that is not based on accrued leave time.
l Tribal per capita payments from casinos. See Tribal Payments.
l Interest and dividends, if not earned as part of a self-employment operation.
l Public Assistance Payments.
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Costs to Secure Unearned Income
Do not count costs necessary to secure the payments of unearned income, such as attorney's fees, medical fees, or other expenses incurred in order to obtain unearned income. Verify these costs using bills, receipts, contracts or other documents.
William receives Workers Compensation (WC) benefits. His gross biweekly payment is $720, out of which $140 is withheld for attorney's fees incurred when obtaining the WC benefits. William signed an agreement to allow repayment of the fees from his benefits, as a condition of the attorney accepting the case. William also has $20 deducted for payment of an old credit card debt.
Allow the $140 withholding for the attorney fees as a deduction. Do not allow the $20 deduction for the credit card debt.
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