The earned income exclusion is one of SSI's most important work incentives. It ensures that working always leaves you better off than not working. Here's how it helps.
In this article, we'll cover:
- What the exclusion is
- How it's calculated
- Why it benefits you
- Combining with other exclusions
1. What the Exclusion Is
The $65 earned income exclusion:
- First $65 of earned income excluded
- Doesn't count against your SSI
- Automatic, no application needed
- Applies every month you work
Plus the $20 general exclusion:
- If not used on unearned income
- Can apply to earned income
- Total of $85 excluded
- Before the 1-for-2 reduction
What "earned income" means:
- Wages
- Self-employment income
- Tips
- Bonuses
- Money you work for
What it doesn't include:
- SSI or SSDI
- Other benefits
- Interest
- Gifts
- These are "unearned income"
2. How It's Calculated
Step by step:
- Start with gross earned income
- Subtract $65 earned income exclusion
- Subtract $20 (if not used on unearned income)
- Divide remaining by 2
- Result is counted against SSI
Example:
- Earn $500/month
- Minus $65 = $435
- Minus $20 = $415
- Divide by 2 = $207.50
- SSI reduced by $207.50 (not $500)
The math:
- You earn $500
- SSI reduced by only $207.50
- Net gain: $292.50
- Always better off working
Compare without exclusion:
- If all $500 counted
- SSI reduced by $500
- No benefit to working
- Exclusion makes work worthwhile
Important: After the exclusion, only half of remaining earnings counts. This is the "1-for-2" rule.
3. Why It Benefits You
You always come out ahead:
- Every dollar earned increases total income
- Never lose more than you gain
- Encourages work
- Builds skills and experience
Example breakdown:
| Earnings | SSI Reduction | Total Income | |----------|---------------|--------------| | $0 | $0 | $967 | | $200 | $57.50 | $1,109.50 | | $500 | $207.50 | $1,259.50 | | $1,000 | $457.50 | $1,509.50 |
Benefits of working:
- More total income
- Work experience
- Social connection
- Sense of purpose
- Path to independence
4. Combining With Other Exclusions
Other work incentives:
- IRWE (Impairment-Related Work Expenses)
- BWE (Blind Work Expenses)
- SEIE (Student Earned Income Exclusion)
- PASS (Plan to Achieve Self-Support)
Order of exclusions:
- SEIE (if student)
- $65 earned income
- $20 general (if unused)
- IRWE deductions
- Then 1-for-2 reduction
Example with IRWE:
- Earn $800/month
- IRWE: $100 (medical expense for work)
- After $65 + $20 = $715
- After IRWE: $615
- Divide by 2: $307.50 counted
- Without IRWE would be $357.50
Student example (SEIE):
- Student under 22 earns $1,500
- SEIE excludes $1,500 (up to limit)
- $0 counted against SSI
- Keep full SSI plus wages
Important Considerations
What reduces your SSI:
- Only the calculated amount
- Not your gross earnings
- Exclusions help significantly
- Working is beneficial
Unearned income different:
- No $65 exclusion
- Only $20 general exclusion
- Reduces dollar-for-dollar after $20
- Less favorable than earned
Reporting requirements:
- Report all earnings
- SSA needs pay information
- Even with exclusions
- Don't hide income
How Purple Helps
- Track earnings and benefits together
- See your total income clearly
- Monitor for SSI resource limits
- Manage work income
- Stay organized