Substantial Gainful Activity Determinations: Using Paid Time Off as Exclusions When Determining Countable Earnings
Updated: Jun 24
Description: The article addresses a critical but often overlooked policy: how Paid Time Off (PTO) can be excluded from gross monthly earnings to reduce "countable earnings" when the Social Security Administration (SSA) conducts a Substantial Gainful Activity (SGA) review.
Introduction
A key part of the disability definition for the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) programs is the inability to perform substantial gainful activity (SGA) due to one or more medical conditions.1 In disability determinations, the Social Security Administration (SSA) has long used an SGA monthly earnings test as a presumed showing that the applicant or beneficiary has demonstrated the ability to perform SGA and is not or is no longer disabled. For 2022 the monthly SGA figure is $2,260 for persons who are statutorily blind and $1,350 for all other disabilities, with those amounts increasing to $2,460 and $1,470 in 2023. When “countable monthly earnings” exceed the SGA amount for the year being reviewed, SSA will ordinarily deny a Social Security disability application or an SSI application for an adult age 18 or older. The SGA test will not be applied to SSI applications for persons who are statutorily blind.
The SGA earnings test does not apply to SSI beneficiaries, as SSI payments will be gradually reduced as earnings increase. The SGA test, however, will apply to SSDI beneficiaries, including those receiving Childhood Disability Benefits (CDB), and Widow’s or Widower’s disability benefits at key points as they pursue work goals:
The SGA test will not apply during the nine-month Trial Work Period (TWP).
It will apply during the 36-month Extended Period of Eligibility (EPE), first to determine when a “benefit cessation month” has occurred and, after a three-month grace period, to determine if a month will be an SSDI payment or nonpayment month.
It will apply after the EPE to determine whether SSDI payments will be terminated due to SGA-level earnings.
For those terminated after the EPE, the SGA earnings test will be used to determine whether the person qualifies for Expedited Reinstatement (EXR) because they are no longer working or are earning at less than the SGA level.
A detailed explanation of the TWP, EPE, and EXR work incentives is beyond the scope of this article. We refer readers to the materials provided by your technical assistance provider – typically either the Virginia Commonwealth University (VCU) or Cornell University program – and to SSA’s website for more detailed explanations.
When SSA compares earnings to the SGA level for the year being reviewed, it is required to consider three categories of exclusions to subtract from gross earnings: paid time off (PTO, such as paid vacation, personal, sick, and holiday time), impairment related work expenses, and subsidies/special conditions. It is clear from a review of materials on SSA’s website and many other governmental and non-governmental websites that the word has gotten out concerning the earnings exclusions for IRWEs and subsidies/special conditions. By contrast, it is less clear that the word has gotten out about exclusions for PTO. In fact, having looked at many non-SSA websites that provide information on determining countable earnings for an SGA determination, it appears that less than half specifically reference PTO as an exclusion. And many of those referencing PTO are private law firm sites, presumably specializing in disability appeals from denied SSDI or SSI applications.2
This article will focus on how PTO can reduce countable earnings for employees when being compared against the SGA amount for a year being reviewed. We will:
Reference specific SSA policy clarifying that PTO is an earnings exclusion when countable earnings are determined and reference SSA policy and SSA information sites that fail to mention PTO.
Reference a key SSA work review form and instructions, providing an opportunity to verify that a part of earnings can be excluded as PTO.
Provide examples of how PTO can be used, month-by-month during the EPE and during a multi-year work review to avoid either a suspension of payments or a benefit termination.
Explain that PTO can be used to support an overpayment appeal to either reduce or eliminate the overpayment.
This article will not address SGA determinations for persons who are self-employed, as those determinations are typically based on a very different analysis, with PTO not an earnings exclusion usually seen with self-employment.3
For simplicity’s sake we will use the term SSDI to include those getting CDB or Widow’s/Widower’s disability benefits, as the policies described will be the same for each benefit category. Based on when SGA issues typically occur within the benefits counseling context, we will focus on SSDI benefits and on SGA issues that occur within the EPE. While most NABWIS members will not deal with this issue, we must emphasize, however, that SGA is an important part of the initial application process for both SSDI and SSI, with many applications denied based on SGA-level earnings. All policy discussed below, for excluding PTO when determining countable earnings, will apply to any SGA determination made by SSA, including those at the application stage.4
SSA’s Policy Allows Exclusions for Paid Time Off in SGA Determinations
SSA makes it very clear in POMS DI 10505.010 C that SGA determinations, based on earnings, are to be made based only on “earnings derived from actual work activity”:
“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 work 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. (Emphasis added)...If an individual takes sick and/or vacation pay in lieu of time off, only the earnings that can be directly attributed to his or her work activity in that month should be used in determining if the individual has engaged in substantial gainful activity in that month.”
A note following the quoted language states that the “POMS has not previously addressed how to evaluate sick/vacation pay for SGA purposes …” Since this POMS section was last updated in November 2004, it has been at least 18 years since SSA specifically sanctioned the use of sick and vacation pay and based on the highlighted language, any other paid time off to reduce monthly earnings when determining countable earnings for SGA purposes.
SSA has reinforced this principle in other places. See POMS DI 10505.001 at A.1 (alerting SGA decisionmakers to consider “pay for non-work,” referencing sick pay, vacation pay, holiday pay, and bonuses); and at C.1 (referencing deductions for sick or vacation pay, bonus or incentive payments).5
PTO exclusions are recognized in Form SSA-821-BK, Work Activity Report-Employee, to be completed by the beneficiary, potentially with help from a benefits counselor or other service provider. Question 2, page 3 provides boxes to check and spaces for detailing use of vacation pay, holiday pay, sick pay, disability pay, and other. Question 4, page 5 provides space for similar information if PTO comes as a separate payment. Since so little space is provided for what could be multiple PTO entries, the form suggests using the “remarks” section on page 8 for additional information. A better option, in some cases, would be to create a separate document that fully explains for each month the different categories of PTO used and value of those payments.
Its More Than Just Sick or Vacation Pay! Expansive List of What Qualifies as PTO
POMS DI 10505.010 C references sick or vacation pay as examples of “pay for non-work days” that should not be considered countable earnings for SGA purposes. In fact, many non-SSA websites that do mention PTO as exclusions from earnings also limit their references to sick or vacation pay. We believe the POMS use of sick or vacation pay is by way of example, with the more important language the first sentence of this subsection: “When evaluating earnings for substantial gainful activity purposes, consider only earnings derived from actual work activity for the month under consideration.”
Here are some additional PTO categories (not an exclusive list) that should qualify as exclusions from earnings, keeping in mind that employers may allow employees to take this time in hours, partial days, or full workdays.
Holiday pay.
Personal time – Unlike vacation time, employers may allow employees to take a few paid days off each year without prior approval.
Use of sick leave bank – Employers may provide for employee donations of unused sick time to a sick bank. Often, very specific criteria will apply to use of the sick bank as this time may be viewed for use in extraordinary circumstances.
Look for PTO that covers two or more categories – Employers using this system may allow employees to use PTO for what would traditionally be covered, separately as sick, personal, and vacation days.
Bereavement leave – Employers may allow employees to take one or more paid days off upon the death of a close family member.
Pregnancy leave – potentially up to several weeks or months. Some disability plans may fund all or a part of this. If payment for this leave time comes with the paycheck or electronic payment, it should qualify as excludable PTO.
Paid parenthood leave - for the spouse or partner who did not give birth, or for one or both adoptive parents.6
PTO when the place of employment is closed due to weather or another event – e.g., related to a snowstorm, hurricane, fire, or event like a heating or air cooling system not working.
PTO when the employer’s business was closed for a period of days or weeks during the COVID pandemic – particularly relevant to multi-year work reviews that include the year 2020, when many businesses temporarily shut down or drastically limited staffing.
If the beneficiary is paid for any period of non-work, that payment should be excluded from earnings during an SGA review.
Start with the paystub or electronic record to document PTO. This is always your best record if it exists. If the employer uses a payroll service, there will likely be a place on the paystub for various PTO categories. Just keep in mind that some pay stubs/electronic records may not document any PTO, may use initials or codes that are unclear, or may only document the most common forms of PTO.
What about jury duty payments? These would include a daily rate paid by the State/Local Court (ranging from $5 to $50 per day) or the Federal Court (typically $50 per day). A second potential payment may come from the juror’s employer, with several States requiring employers to continue wages during jury duty, supplementing the juror fee or providing full pay, with the juror fee paid over to the employer.7
The court’s payment should be excluded. We find no reference to a juror pay policy in the POMS. With no set description of what occurs during a juror’s day and with the inevitable idle time while waiting for a trial assignment or even during a trial,8 it would not be appropriate to call this a payment for working.
The employer’s payment should be excluded. Some employers, either by State law mandates or employer policy, will continue daily wages while the employee meets their civic duty to participate as a juror. This fits squarely into SSA’s policy for excluding PTO from countable earnings as the employee does no work for the employer during jury duty.
SSA’s Website Fails to Mention PTO in Other Places Where SGA or Key Work Incentives are Presented
Within its POMS subchapter describing Continuing Disability Reviews related to work activity, POMS DI 13010.210 Extended Period of Eligibility at subsection D. Work Incentives and the EPE, the policy lists IRWEs and subsidies as exclusions from earnings, but makes no mention of PTO.
The Red Book – A Guide to Work Incentives (January 2020). This 60-page publication, periodically updated, is regularly referenced as the place to find all the key work incentives summarized. It comes with a very detailed table of contents and does elaborate on the use of IRWEs as well as subsidies and special conditions to reduce countable earnings when SSA makes SGA determinations but makes no mention of PTO.
SSA’s Ticket to Work or Choose Work site is regularly advertised as a place for beneficiaries and providers to get up-to-date and accurate information about the many issues related to benefits and work. Its page on Extended Period of Eligibility, updated in May 2018, references IRWEs and subsidies as exclusions in determining countable earnings, with no mention of PTO as an earnings exclusion.
SSA’s website, Substantial Gainful Activity (2023 update) only references IRWEs as an exclusion in determining countable earnings.
SSA website, Work Incentives - Detailed Information, contains brief summaries for 17 different work incentives categories, including IRWEs and subsidies/special conditions. No references are made to PTO.
It would be helpful if SSA would consistently reference the use of PTO as an earned income exclusion whenever it discusses policy related to SGA determinations.
Case Examples of PTO Used to Reduce Countable Earnings
These examples are based on scenarios that benefits counselors will likely encounter in their work.
Use of IRWEs and PTO During Extended Period of Eligibility
Lenora, age 49, receives SSDI based on multiple sclerosis. As 2022 begins, she is entering month 7 of her 36-month EPE. During 2021 she experienced a “benefit cessation month” and three-month grace period based on SGA-level earnings during the EPE. Throughout 2022, she will be eligible for an SSDI payment for months with countable earnings at or below SGA ($1,350) but will not be eligible for a payment when countable earnings are more than $1,350.
Throughout 2022 Lenora works part-time, 5 hours per day or 70 percent of full-time equivalent (FTE) based on a 7-hour workday. She earns $1,500 gross monthly. When she has a paid day off, she is paid $68 for the day based on her daily rate as a .70 FTE employee.
During 2022, Laura has monthly IRWEs of $60 based on copayments for two prescription drugs she takes that meet the IRWE criteria. Lenora also has PTO as follows. Note that in some months it is only when the IRWEs and PTO are combined that countable earnings fall below the $1,350 SGA amount:
January 2022 – holiday pay for New Year’s Day and Martin Luther King Day; one vacation day after MLK day. Total PTO = $204. Countable earnings = $1,236 ($1,500 – 60 IRWE – 204 PTO). Below SGA, SSDI paid.
March 2022 – 1.5 paid sick days. Total PTO = $102. Countable earnings =
$1,338 ($1,500 – 60 IRWE – 102 PTO). Below SGA, SSDI paid.
April 2022 – 5 vacation days to visit ailing mother who lives out of state. Total PTO = $340. Countable earnings = $1,100 ($1,500 – 60 IRWE – 340). Below SGA, SSDI paid.
June 2022 - 2 paid bereavement days (death of mother); 2 vacation days. Total PTO = $272. Countable earnings = $1,168 ($1,500 – 60 IRWE – 272 PTO). Below SGA, SSDI paid.
July 2022 – holiday pay for July 4th; 1 sick day (heat-related flare up of MS). Total PTO = $136. Countable earnings = $1,304 ($1,500 – 60 IRWE – 136 PTO). Below SGA, SSDI paid.
October 2022 – holiday pay for Columbus Day/Indigenous People’s Day; paid for 2 days when employer closes business due to storm-related loss of power. Total PTO = $204. Countable earnings = $1,236 ($1,500 – 60 IRWE – 204 PTO). Below SGA, SSDI paid.
December 2022 – holiday pay for Christmas Day and half day holiday pay for both Christmas Eve and New Year’s Eve; 2 vacation days during holiday week. Total PTO = $272. Countable earnings = $1,168 ($1,500 – 60 IRWE – 272 PTO). Below SGA, SSDI paid.
Lenora will qualify for SSDI payments for 7 of 12 months during 2022 (we’ll assume her countable earnings were more than $1,350 during each other month). Lenora will want to be proactive in reporting the above information to SSA so that she is paid properly.
What if this was part of overpayment appeal? Often, the month-by-month review of countable earnings occurs during a multi-year review of earnings after completion of a Trial Work Period and all or part of the EPE. In Lenora’s case, that review might have determined that each month during 2022 she had worked at the SGA level (no exclusions made for PTO) and assessed a 12-month overpayment against her. The analysis above could be used in the context of an overpayment appeal to drastically reduce the overpayment.
Use of COVID-Related and Other PTO During Extended Period of Eligibility
Jonah, age 28, receives SSDI based on a seizure disorder. His receptionist position at a government agency paid him $24,000 per year ($2,000 gross per month) during his 36-month EPE period, October 2019 through September 2022. During 2019 he experienced a “benefit cessation month” and three-month grace period based on SGA-level earnings during the EPE. During a typical EPE month, Jonah did not have enough in PTO, IRWEs, and subsidies/special conditions to bring his countable earnings below the relevant SGA level.
PTO during COVID-related office closure. During the last two weeks of April 2020 his agency closed its offices due to COVID. Then during the month of May 2020 Jonah was required to stay home and not work as he was considered non-essential to the operation of the agency during the continuing COVID-related crisis. Jonah received his full pay for the last 11 workdays of April ($1,000) and received his full pay for the month of May even though he did not work during either period.
Jonah will be paid SSDI for these two EPE months (2020 monthly SGA level was
$1,260):
$1,000 ($2,000 – 1,000 PTO). Below SGA, SSDI paid.
May 2020 – one month off with full pay. Total PTO = $2,000. Countable earnings
= $0 ($2,000 – 2,000). Below SGA, SSDI paid.
Jonah tests positive for COVID. During May 2021, there is a continuing COVID presence in Jonah’s community and he tests COVID positive on a Sunday afternoon. His employer’s policy requires that he remain out of work for a minimum of five days and only return after he is symptom-free and tests negative for COVID. He is out for eight days total and is fully paid for this period through use of accumulated sick time.
Jonah will be paid SSDI for the month of May 2021 (2021 monthly SGA level was
$1,310):
May 2021 – holiday pay for Memorial Day; 8 days of paid sick time. Total PTO =
$810 (9 days valued at $90 per day). Countable earnings = $1,190 ($2,000 – 810). Below SGA, SSDI paid.
During July 2021, Jonah couples his July 4th holiday with 7 vacation days for some much needed relaxation at home. He will be paid SSDI for the month:
July 2021 – holiday pay for July 4th; 7 vacation days. Total PTO = $720 (8 days valued at $90 per day). Countable earnings = $1,280 ($2,000 – 720). Below SGA, SSDI paid.
Final impact on Jonah. Based on this analysis, Jonah can establish the right to two SSDI payment months in 2020 and two in 2021. Hopefully, he was able to report this information timely and SSA was able to fully implement these four SSDI payment months and presumably 20 nonpayment months over this two-year period.
What if Lenora’s or Jonah’s Case Involved Similar Work Activity Following Reinstatement under the Expedited Reinstatement Provisions?
We’ll assume, for example, that Lenora’s SSDI was terminated based on SGA-level earnings following the EPE. Thereafter, within 60 months of that termination countable earnings go below SGA levels and she is reinstated through the EXR provisions. If the
work activity, described above, occurred during EXR’s Initial Reinstatement Period (IRP), the countable earnings analysis, use of PTO, and determination of SSDI payment months would be exactly the same. Similarly, if Jonah’s described work activity occurred within his IRP, the SGA analysis and outcome would be the same.9
Conclusion
Your co-authors, often working in collaboration with Western New York SSA staff, offered periodic training on work incentives to service providers as part of an SSA-funded demonstration project, starting in late 1999.10 It was shortly after we began offering these training programs that we learned through an SSA collaborator that paid time off was available as an earned income exclusion, in addition to IRWEs and subsidies/special conditions, when determining countable earned income to be compared to a year’s SGA level. More than 20 years later the use of PTO as an earned income exclusion is still an afterthought in much of SSA’s policies and work incentives materials. Similarly, many non-SSA websites, including those of some highly regarded organizations fail to mention PTO when discussing, for example, countable income determinations during the EPE.
We hope this article will make more of our NABWIS members aware of this very important tool for minimizing the immediate impact of work and earnings as SSDI beneficiaries move toward financial independence through work. As always, we believe our readers are important ambassadors for getting the word out about PTO and the other important issues we address in the Deeper Dive series. Please let us know as you encounter successes with the use of this information.
Dated: November 28, 2022
Authors: James R. Sheldon, JD (Board Member), Disability Consultant and Edwin J. Lopez-Soto, JD (NABWIS member), Extension Faculty, Cornell’s Yan Tan Institute (YTI)
Footnotes:
1 42 US Code 423(d).
2 We note that both VCU and Cornell cover, in their training and resource materials, the use of PTO to reduce countable earnings for SGA determinations.
3 See POMS DI 10510.010 for details on “SGA Evaluation and Development of Self Employment.”
4 Note that SGA determinations made at the application level and during the EPE to determine if a cessation month has occurred involve the potential for both averaging of earnings and a finding of an unsuccessful work attempt. POMS DI 10505.015 and DI 11010.145. Neither income averaging nor unsuccessful work attempts apply during the EPE, after the benefit cessation month and grace period to determine SGA on a month-by-month basis.
5 POMS DI 10505.010 D discusses the limited circumstances in which a bonus payment can be excluded from earnings in an SGA determination.
6 We should distinguish pregnancy and parental “paid” time off from time off pursuant to the Family Medical Leave Act (FMLA) that typically comes without payment from the employer.
7 See Jury Duty 101: Jury Duty Laws by State, with more than half of States paying $5 to $25 per day, and the majority of States offering no additional reimbursement for travel expenses.
8 See The Answer Book for Jury Service, with the State of Virginia acknowledging the inevitable wait time for getting picked for a jury, suggesting : “So bring a book, some needlework, or other quiet activity; solve a crossword puzzle; write a letter; sketch a picture; or get to know your fellow jurors.”
9 For a detailed analysis of EXR and SGA determinations during the IRP, see Understanding Expedited Reinstatement, VCU, Work Incentives Planning and Assistance, National Training and Data Center (January 2021).
10 This was through New York Works, funded as one of 12 State Partnership Initiative Projects, with demonstration sites in Buffalo and New York City.
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