SSR 74-28: SECTIONS 203(b) and (f), 204(b) and 209 (42 U.S.C. 403(b) and (f), 404(b) and 409) -- WORK DEDUCTIONS -- WAGE STATUS OF TRAVELING EXPENSES -- WAIVER OF RECOVERY OR ADJUSTMENT OF OVERPAYMENT
20 CFR 404.415(a), 404.429(a), 404.432, 404.508, 404.510, and 404.1026
- Where claimant has received overpayment of retirement insurance benefits because he mistakenly believed that travel expenses which were excluded from his gross income for income tax purposes should also be excluded from income reported for purposes of determining applicability of work deductions, and where recovery or adjustment of overpayment would deprive claimant of current income required for ordinary and necessary living expenses; held, section 204(b) of the Act requires waiver of recovery or adjustment of overpayment because claimant was without fault in causing overpayment and recovery or adjustment would defeat the purpose of Title II of the Act.
V, the claimant became entitled to retirement insurance benefits June 1969. He returned to work in October 1969 and had gross income from wages of $3,943.10 in 1969, $3,671.87 in 1970, and $3,965.06 in 1971. The claimant worked as a salesman for a company which dealt in advertising specialties. V was assigned a territory where he was to make calls and solicit business. His contract with his employer provided that he was to receive a straight commission based on the amount of sales; the contract made no provision for any reimbursement or advance of traveling expenses.
V mistakenly believed that the traveling expenses he incurred in connection with his employment should be deducted from his gross income for social security purposes as they were for income tax purposes; the fact that the expenses incurred and reported to the company were segregated on his statement of earnings for income tax purposes added to that belief. Consequently, V did not report properly his total income.
Section 404.102(a)(8) of Regulations No. 4 states that amounts paid specifically -- either as advances or reimbursements -- for traveling or other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred in the business of the employer are not wages. Traveling and other reimbursed expenses must be identified either by making a separate payment or by specifically indicating the separate amounts where both wages and expense allowances were combined in a single payment. The amounts paid to V were not related to expenses incurred but were based upon the amount of sales. Therefore, they would be included as wages and must be included in determining V's income.
As a result of his misunderstanding, V was overpaid $363.00 in 1969, $1,391.00 in 1970, and $1,680 in 1971 for a total overpayment of $3,434. Section 204(b) of the Act provides, in effect, that where an incorrect payment is made to an individual who is "without fault", there shall be no adjustment or recovery by the United States if it would "defeat the purpose of Title II of the Act," or if it would be "against equity and good conscience."
Section 404.510(h) of Regulations No. 4 (20 CFR), provides, in part, that an individual will be considered "without fault," in accepting a payment which is incorrect because of failure to report an event which could cause a deduction if it is shown that the failure to do so was because of a lack of knowledge that bonuses, vacation pay, or similar payments, constitute earnings for purposes of the annual earnings limitation. Section 404.508 of Regulations No. 4 (20 CFR), provides that "defeat the purpose of Title II" means to defeat the purpose of benefits under Title II, i.e., to deprive a person of income required for ordinary and necessary living expenses, and that this depends upon whether the person has an income or financial resource sufficient for more than ordinary and necessary needs, or is dependent upon all his current benefits for such needs.
Since V did not understand that his traveling expenses should be counted as earnings, he was "without fault" in causing the overpayment. Based on the refund questionnaire and V's testimony, approximately $5,000.00 of his assets of $6,247.00 are in the form of income producing property. This $5,000.00 should not be considered in the claimant's assets since he relies on the income from such property to meet his necessary and ordinary living expenses.
Based on V's testimony and the refund questionnaire, V has approximately the following sources of current monthly income:
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He has approximate monthly expenses of $676.66 and has liquid assets of approximately $1,200.00. Clearly, recovery or adjustment of any of the overpayment would deprive the claimant of current income required for ordinary and necessary living expenses. His income and financial resources are not sufficient for more than ordinary and necessary needs. Therefore, recovery or adjustment of the overpayment would defeat the purpose of Title II. Consequently, since V was without fault in causing the overpayment and recovery or adjustment of the overpayment would defeat the purpose of Title II of the Act, recovery or adjustment should be waived under section 204(b) of the Act.