My 56 YO sister-in-law is developmentally disabled and is a resident of a community specifically for the Intellectually Disabled. She is currently receiving DAC benefits. She pays a monthly "residential" fee of approximately $3700 per month. Recently with the help of her counselors, a job coach and their providing her transportation to and from work, she got a job working off campus and is quite excited. It is my understanding that if she were to exceed the SGA earnings, that she could lose her DAC benefits. If so, she will be unable to reside there any longer. Assuming our SGA concern is correct, we are trying to figure out what amount, if any, of the "residential" fees might be able to be applied as (Impairment Related Expenses) for tax purposes?
Hi. It's true that disabled adult child's (DAC) benefits can be terminated if a person does work that Social Security defines as substantial gainful activity (SGA). It's a complicated issue, though, because when a person who's receiving DAC benefits first starts working they get a 9-moth trial work period (TWP) during which their benefits aren't terminated even if they earn above the SGA level.
The current (i.e. 2021) monthly earnings amount that Social Security considers to be SGA for non-blind individuals is $1310. Impairment related work expenses (IRWE) can potentially be deducted when evaluating SGA, but IRWE is limited to expenses directly related to the fact that a person is working (https://secure.ssa.gov/apps10/poms.nsf/lnx/0410520010). For example, extra transportation expenses that a person incurs due to their disabling impairment and because they are working would most likely be deductible as IRWE. Note that my use of the term 'deductible' refers to the SGA evaluation, not tax considerations. My expertise is limited to Social Security benefits, not taxes.
If your sister-in-law would have to pay the same residential fee whether or not she was working then I doubt if any of that fee could be classified as an IRWE. But, I have no way of knowing whether or not her earnings would actually be considered as SGA. In addition to IRWE it sounds like your sister's employment may be subsidized to some degree, meaning that the actual value of her services may be lower than the amount that she's being paid. And, if so, that can be taken into account by Social Security when evaluating SGA (https://secure.ssa.gov/apps10/poms.nsf/lnx/0410505010).
The bottom line is that the SGA evaluation is much too complex for me to be able to analyze without all of the pertinent details, so I strongly suggest that you try to discuss any questions you may have with a Social Security claims representative or technical expert who has access to your sister in law's records.
Best, Jerry
