Employees Who Receive Disability Benefits

Be aware of potential problems that can arise from hiring these workers.

Background. Many churches have hired workers who are receiving Social Security disability benefits. Consider the following examples.

Example. Bob is a church custodian who received a salary of $24,000 in 2000. Late that year, Bob suffered a heart attack and in 2001 is determined to be disabled by his local Social Security office. He begins receiving monthly disability benefits of $800. Bob gradually begins to resume some of his former activities. Because of his need for more income, he asks the pastor if he can perform custodial duties on a part-time basis. The pastor and board are not sure if such an arrangement is permissible given Bob’s disabled status for Social Security and his receipt of disability benefits.

Example. Pastor Dave is the senior pastor of his church. At age 63, he suffers a stroke that results in permanent physical impairment. A local Social Security office rules that he is disabled, and he begins to receive monthly disability benefits of $1,200. Pastor Dave moves to Florida, and begins attending a church. Within a year, the church board would like to hire him as a part-time “minister of visitation.” It is hesitant to do so, however, because Pastor Dave is receiving Social Security disability benefits.

A recent case. A woman (Mary) applied for disability benefits after having worked for more than 28 years as an administrative assistant for an insurance company. Mary quit her job after developing asthma, and began receiving treatment for an anxiety disorder and panic attacks. Her medical records reflected treatment by a variety of doctors for breathing problems, anxiety, depression, and panic attacks. After considering all the evidence, a Social Security “administrative law judge” concluded that Mary’s allegations of symptoms were not believable and so her request for benefits was denied.

The judge based his ruling on the testimony of Mary’s doctors, and the “extensive” nature of her daily activities. The judge noted that Mary had told her psychologist that she was “90% improved” and was “a different person who could smile and love life again.” With regard to Mary’s daily activities, the judge noted that Mary was able to cook meals, shop for groceries, read, volunteer at her church several times each week, wash dishes, mop, do laundry, swim, straighten her house, visit with family and friends, go to her mother’s house and prepare meals twice daily, and attend coffees at the library two afternoons a week.

A federal appeals court agreed that Mary was not entitled to disability benefits.

Relevance to church treasurers. What is the relevance of this case to church treasurers? Consider the following points:

1. Hiring an employee who has not applied for disability benefits. Some churches have hired an employee who is partially disabled due to an accident or illness. If that person later applies for Social Security disability benefits, it is doubtful that he or she will be successful. Disability benefits are not available to persons who are engaged in “substantial gainful activity.”

2. Hiring an employee who is receiving disability benefits. Since disability benefits are not available to persons who are engaged in “substantial gainful activity,” anyone who is currently receiving disability benefits should not be able to work. Therefore, hiring someone who is receiving disability benefits may jeopardize that person’s benefits. The amount earned is not important. There is no “minimum” amount that can be earned without affecting eligibility for disability benefits. If the person can perform any “gainful or substantial work within the economy,” then he or she is not entitled to disability benefits (with certain exceptions noted below).

3. Penalties. Is a church subject to any penalties if it knowingly hires and compensates a person who is receiving Social Security disability benefits? In most cases, the answer is no. It is the employee, and not an employer, who may be required to pay back disability benefits that were received while he or she was earning wages from a job. Note the following rules:

  • Persons who are receiving Social Security disability benefits are legally required to notify Social Security if there is any improvement in their condition. Failure to do so may make the recipient legally obligated to return some or all of the disability benefits that were paid.
  • Persons who are receiving Social Security disability benefits are legally required to notify Social Security if they accept a job regardless of how much is earned.
  • All disability cases are reviewed by Social Security from time to time. This is to make sure that people receiving benefits continue to be disabled and meet all other requirements. Benefits generally will continue unless there is strong proof that a recipient’s condition has medically improved and that he or she is able to return to work. How often a particular case is reviewed depends on the severity of the condition and the likelihood of improvement. The frequency can range from six months to seven years. A recipient’s Certificate of Award shows when to expect the first review.

4. Workers who are 65 years or age and older. At age 65, disability benefits automatically are converted to retirement benefits, and so the “disabled” status of a prospective worker is not relevant. If your church would like to hire a worker who is 65 years of age or older, you do not have to be concerned about the compensation you pay affecting the person’s eligibility for disability benefits.

5. Incentives to return to work. Church treasurers should be familiar with incentives that the Social Security program offers to encourage disabled workers to return to work.

Consider the following:

  • Disability benefits can be paid only to persons who are unable to do any “substantial” work. The amount of earnings is the key to determining whether or not work is substantial. Under new regulations that took effect on January 1, 2001, an employee earning wages of more than $740 a month is generally considered to be performing substantial work. Employees earning monthly wages of between $300 and $740 a month are considered to be performing substantial work if the amount and quality of the work are about the same as that done by workers who are not disabled. In making this decision, consideration is given to the time, energy, skill, and responsibility involved in the work. Earnings of less than $300 a month are not considered substantial.
  • Persons receiving disability benefits may be able to continue receiving benefits for up to nine months while they try to work. The months need not be in a row, but they must take place within a 60-month period. Under new regulations that took effect on January 1, 2001, a “trial work” month is any month in which a person earns over $530 in gross wages (regardless of amount of time worked) or spends 40 hours working regardless of the amount of earnings. Disabled persons receive their full disability benefits during this period. At the end of nine months of trial work, Social Security will decide if the worker is able to do “substantial” work. If so, the benefits will stop after a three-month adjustment period. If not, disability payments will continue.

6. Be aware of the Americans with Disabilities Act. If your church has at least 15 employees, and is engaged in commerce, then you are subject to the Americans with Disabilities Act. This Act generally prohibits covered employers from discriminating in employment decisions on the basis of the disability of a person who is able to perform the essential functions of a job with or without reasonable accommodation by the employer. There are exceptions. For example, churches are permitted to discriminate on the basis of religion in their employment decisions.

This content originally appeared in Church Treasurer Alert, February 2001.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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