9/20/04 Chat session From Guest70612: What is the success rate of VR clients using the micro enterprise model? There's a study in the handout by researchers at the University of MT - of about 5% closures nationally by VR- From Guest27238: How should we help youth with disabilities consider and adopt self-employment as an option? Does any of your information change for youth? As far as the concerns, opportunities and details of how Medicaid, SSI, etc... systems go I'd not alter my approach - yet I do believe, without research to back up my belief, that youth with disabilities miss out on typical mall business type activates, such as mowing lawns, delivering newspapers, babysitting, snow shoveling - and that would seem like a good place to start creating more opportunities From Guest59324: For Nick's scenario breakdown without a PASS, could you explain why his owner's draw was $21,000 per year. How was this amount figured? Hi Owner's draw was set in both scenarios to equal the net earnings of his business - as a worst case scenario - since the IRS taxes him on the NESE, and SSI, Food Stamps, Section 8, etc... all adjust based on the NESE of his biz even if he does not take it out as an owners draw From Guest27238: What is the success rate of VR clients using the micro enterprise model? - Think I sent out a study as materials on the web site that shows 5% closures by VR nationally - yet do not have a clear idea if those are considered successful From Guest68089: What forms are necessary for reporting earnings to Social Security for some who is babysitting? Initially, you can simply "allege" using SSA's terms that you expect to earn $x in net earnings in the 1st year of your business - to SSI - since SSI averages evenly no matter what you earn - SSDI has a form called a "First Report of Work Activity" for self employment - I can e-mail that from to you - after you file your business and personal taxes you then need to bring copies of your business tax returns like a schedule C, SE or 1065 Partnership return - to prove what you actually earned From Guest27238: is there a profile of an individual who would be best served by the micro enterprise model? I believe some people seem to think there are success profiles that can be statistically validated for just about anything - yet we tend to favor the approach of self employment that anyone can work for money - everyone works, bruising teeth, making dinner, even just blinking an eye to tell a PCA what to do next - the issue is not are you working- it's are you working for money? - and we follow the belief that all people can work for pay - and if that pay is a self employment sub contract or From Guest20375: what is the rule of thumb on how many people can be employed within a micro-enterprise? - I don't know - I suppose there is one - an perhaps someone in this chat room can answer that for you - the SBA does show differences in business owned by various categories, such as business employing less that 5 people, etc... From Guest41487: Can individuals only on SSI write a PASS to assist with business development expenses? Someone on SSI only will need some other source to get the business started such as VR or a Loan- yet if the business is predicting say $6,000 Net Earnings in the first year - then SSI would normally be reduced by roughly 1/2 of that and that missing 1/2 could be used in a PASS as the business runs in the first year - to pay back a loan or whatever, but not before the business started - if it was true full SSI check each month with no reductions prior to the business startup From Guest41487: I'm not clear on how the PASS immediately infuses cash into the business. I thought PASS was intended to protect benefits while saving for work related goals. - I've not seen PASS as a way to protect benefits - yet that's a long discussion - PASS to support a work goal is on target - and a PASS does not need to only "save" it can pay for expenses in a business anytime the PASS funds are available mathematically during at least the 1st 18 months of the business startup, some retroactive PASS's for people receiving SSI and SSDI fund thousands of dollars the day the business starts -and when a PASS pays for expenses in a business, it by default infuse Thank You For Participating in this discussion! If you'd like to continue my e-mail is: dhammis@griffinhammis.com - (:->) Dave Additional Questions submitted by email: Email: 1.) Please give a laundry list of the types of micro enterprises that have been attempted? Is it mainly in service type jobs? - My comments - I don't keep a laundry list of businesses - but they are as varied as people are, from manufacturing Piñata's in NM, to Embroidery and sewing manufacturing in multiple states, to a live bait vending business in FL, to a fitness center in TN, Photography, Coffee Shops, restaurants, - if it helps, I do see from my perspective many lawn mowing businesses, vaguely defined art businesses, card manufacturing and sales, many food vending businesses, & many shredding businesses. I thinks the percentage of type of manufacturing versus service business are about the same proportion as the you would find in the general economy - with service & retail businesses outpacing manufacturing and farming, etc... I'm attaching a file that the WIA folks out of MT and WY put together that shows some of the variety of businesses from a WIA grant funded project there - 2.) What percentage of the essential job functions that the consumer can perform equates to competitive employment? In other words, if the individual with the disability can perform 10% of the duties is that competitive? I don’t know of any percentage of performing essential job functions in a business that a person owns, not sure that's a gauge I'd look for. SSA, VR etc... tend to look for "active participation" and a notion like job carving from supported & CE employment practices and/or partial participation from supported & customized employment (CE) principles, and then as high as possible net earnings as a gauge in IRS defined self employment (non-corporate businesses). For instance I prefer to strive for the person making well above the prevailing comparable "wages" for hours worked in the business - via net earnings - so if the business gross sales are say $40,000 and the net is $20,000 and that is for a 40 hour work week - that's about a $10.00 per hour wage equivalent - not the best - but certainly better than a business that produces say a yearly revenue of $1,200 net for a 40 hour work week - which would be sub-sub minimum wage - basically working for pennies per hour - and during that work seek I'm supporting the development of actual business tasks that anyone would need to do during those hours, carved as needed for personal strengths and accommodations, yet work just the same. If VR is involved and it's possible to figure out - I also prefer to work out income and benefit solutions for the owner/operator to earn over SGA in a planned manner both for income and benefits issues, Medicaid, SSI, SSDI, etc... - so that VR will get reimbursed for all the expenses it pays for by SSA, and then VR can use those funds to support someone else's in a business in the future. I tend to believe we are intelligent enough to support the design of a business that produces the equivalent in net earnings of a fair wage and even better than that with profits that continue to build and strengthen the business. Medicaid and SSA and the IRS do evaluate businesses to make sure the person is doing work that is "active" and not "passive income" - since passive (investment) income is not earned income - and so if the owner does not participate in the business ins some capacity - then Medicaid or SSA or the IRS could rule that the business is not self employment and is just and investment. Which is very important in order to exclude the assets and cash in the business - which is allowed if it's actively produced income and the asset exclusions are not allowed if it's passive income. I also work diligently to increase the owner's net worth - per long proven social studies (that started the IDA national programs to assist people to build assets to combat generational poverty) that as net worth and assets build that people can move out of poverty and since Medicaid and SSI exclude all the cash and physical resources of a business - a business becomes and is one of the few ways a person relying on needs based systems supports to survive can self initiate and build wealth through increasing her/his net worth over time. Email: 1) How can an expense be used simultaneously as a business expense (to reduce net self-employment earnings) and as a PASS expense (to reduce countable income for SSI purposes) without double dipping? If I pay for a $200 monthly expense that could be allowable as either a business expense or a PASS expense, can I actually use it first as a business expense (reducing my net self-employment earnings by $200 per month) and THEN as a PASS expense as well (further reducing my countable income for SSI purposes by $200 per month)? 2) In your experience, when evaluating SGA for self-employed SSDI beneficiaries, how often does SSA look beyond "countable earnings" and consider other tests (e.g., work activity of others self-employed as their livelihood in the same community and same type of business, how much the self-employed person would likely earn if engaging in the same work as an employee)? 3) Regarding your 4th recommendation about self-employment loans, would you want to mention the 20 states that are starting "Access to Telework" loan programs through grants from the Rehab. Services Administration? Many of the grantees have opened these loans to people starting small businesses. While loans are limited to equipment (rather than services, inventory, etc.), they may help fill the gap considerably. I'll respond to each directly below by using your numbers: 1.) Prior to August of 2000 - when PASS paid for a business expense - SSA used an old SSI related policy internally that in the short version - said a PASS could not pay for a business expense that was simultaneously reducing the gross sales as a deductible business expense to arrive at net earnings - yet in 99% of small business PASS's - a PASS is used to pay for business expenses that do and for the most part have to by IRS laws reduce gross sales to get to net earnings. In that past (before 7/2000) - PASS's were being approved to pay for business expenses in the first year and then a year later when the business reported net earnings on IRS tax filings the PASS was reversed since it did pay for business expenses and the person owed back all the PASS funds to SSA. SSA took the position back than that a PASS was a no interest small business loan. We met with SSA PASS Cadre Specialists in D.C. and NASI and the SBA, VR, RSA, etc... in the summer of 1999 and went over this issue and then in the fall of 2000 SSA altered their PASS policies to allow a PASS to pay for business expenses. It's not double dipping - it's simply allowing a PASS to pay for a business expense and not cause an overpayment the next year - such as allowing a PASS to pay for a phone bill for a business or business insurance, etc.... PASS is the person's own funds going into the business when it pays for business expenses, as if the person took $400 or whatever out of her/his savings account each month and put the $400 in the business and paid for business expenses with it - and as such it really just deposits operating capital (cash) into a business when it pays for any business expense If that's not clear - please call if you'd like and we can talk about it. We advocated for years to get that change approved at SSA finally in the fall of 2000. 2.) In my experience - SSDI tends to look beyond SGA at the 3 tests for SGA at "corporations" that are showing some sort of gross sales over about 2 to 3 times yearly SGA (apparently assuming that the net earnings are a 50% function of the gross sales) - so at about $20,000 in gross sales in a corporation - SSA seems to look a bit, at $40,000 to $50,000 even closer, and usually after about $100,000 in gross sales - if the person is still under SGA in wages paid by a corporation the person owns I've found SSA pretty ambitious in using the 3 tests. I've also found that SSDI tends to not look as closely at non-corporate entities like sole proprietorships, partnerships and LLC's that file taxes as sole proprietorships or partnerships. Since the net earnings of the business are the owner's income - whereas in a C-Corp the business could be paying taxes separately on $50,000 of net earnings and only paying the owner $700 a month or whatever in wages. Large Shareholder Distributions as unearned income typically used in S-Corps to avoid paying some of the SSA 15.3% related "self employment tax" on wages- that show up on SSA records because SSA assesses the 2.1% Medicare tax on Shareholder distributions also tend to trigger a SSDI SGA review. A recent example - was a guy I never knew or knew about until he was in trouble that started a small Radio Shack business, and in the first 9 months grossed about $100,000 and paid himself $36,000 in wages - which used up his TWP, and he figured that out on his own at the end of that year - so the next year - he restructured his business to pay his wife $30,000 (even though she had a 40 hour/week wage job somewhere else) and to only pay himself $9,000 in year 2. SSA figured that out a year or so later, when his income dropped from $40K to 9K and his wife's income went up from $20K to $50K and he now is faced with appealing a large SSDI overpayment and eventually I was introduced to this situation and asked about it to see if I could help with the appeal. Another recent example was a gal that grossed $125,000 in her first year and showed a net loss for the year in a sole proprietorship, she even had a PASS that predicted that income as I understand it - she may have been ok, but one of her ex-employees that she fired went to the local rural SSA office and "alleged" that she was working 90 hours a week and paying herself under the table, etc... - again, I did not know her - but she contacted me after the fact for assistance with an appeal, and already had the state P&A folks assisting her, but SSA had stopped her SSDI checks and was sending her overpayment notices - and then she just folded up her company and left the state she was living in. In general informal discussions with SSDI claims reps and ex-SSDI claims reps I'm told that SSDI claims reps prefer to just average income and if it's below SGA and not too obvious like the Radio Shack guy - and don't have a lot of time to investigate the 3 tests for SGA - yet I'd be afraid to advise people on SSDI to bet that SSDI would not "look beyond countable earnings" 3.) I certainly agree on the fact that I should have mentioned the Telework loans and RSA grants, I'm aware of them, but not closely connected with any, and also an entire array of DD Council grants, and other initiatives, grants. loans, etc... - and will certainly keep them in mind for future recommendations. ..... I would like to take you up on your offer to discuss the first issue a bit further to be certain I've got it straight. Here's an example: Jane has a sole proprietorship. She grosses $8,400 in her first year and pays for $2,400 in business expenses. All of the business expenses would also be allowable as PASS expenses, and she uses a PASS for all of them. Before starting her business, Jane received only SSI - the full FBR. For tax purposes, I understand Jane would deduct the business expenses from gross revenues, yielding $6,000 net self-employment earnings, and would pay self-employment tax on 92.35% of that total. For SSI purposes, though, here's the question: Would she deduct her $2,400 as business expenses first (yielding $6,000 per year or $500 per month net self- employment earnings) and THEN deduct the SAME $2,400 ($200 per month) as PASS expenses? This would bring her countable income for SSI purposes down to only $7.50 per month. It makes sense to me that a single expense could be counted as a business expense for tax purposes and as a PASS expense for SSI purposes. However, to use that expense TWICE for SSI purposes (as a business expense AND a PASS expense) seems excessive. Am I missing something? ...... I think you got it in your example - I'm attaching two Excel spreadsheet workbooks I developed for an embroidery business in NY, one with a PASS and one without a PASS - and the person involved only has SSI - so the only way to develop a PASS is to use roughly 1/2 of the net earnings from (less the .9235 NESE reductions and -$85, divide by 2 of NESE) self employment (NESE) and the only things paid for by the PASS are business expenses The workbooks have many tabs/sheets to them for P&L, Cash Flow, Balance Sheets, Personal income and benefits analysis sheets, a VR funding summary sheet and a PASS funding summary sheet (PASS shows up in the Cash Flow sheets and in the Benefits Analysis/ Personal Living Income Analysis sheets and in the PASS summary sheet) If you compare the PASS to without a PASS workbooks you will notice that the business has negative cash flow without a PASS but positive cash flow with a PASS. Since no matter what a PASS pays for in business expenses it actually just deposits cash back in the business versus an SSI check reduction without a PASS This PASS has not been submitted to SSA yet since we are waiting for a VR funding committee meeting first, and SSI only PASS's can be approved retroactively anyway just as PASS's for people receiving both SSI and SSDI can go back in time.. I'm also attaching two Excel Workbooks for a Live Bait Vending business in Florida where the person did get a retro PASS start up payment and has both SSI and SSDI and the benefits analysis sheets also track TWP, EPE, etc... as another example of SSDI and 1/2 of the projected NESE used in the PASS - SSI and VR fully approved the funds requested in this plan this summer. Hopefully if you call we can discuss the attached examples and they will make some sense related to your original questions.