Supplemental Security Income for the Aged, Blind, and Disabled; Treatment of Certain Royalties and Honoraria

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Social Security Administration

20 CFR Part 416

RIN 0960-AD35

Supplemental Security Income for the Aged, Blind, and Disabled;

Treatment of Certain Royalties and Honoraria

AGENCY: Social Security Administration, HHS.

ACTION: Final rules.

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SUMMARY: In these final regulations we are amending the supplemental

security income (SSI) regulations to reflect the provisions of section

5034 of Pub. L. 101-508, the Omnibus Budget Reconciliation Act of 1990

(OBRA '90). The provisions of this section change the treatment of

certain royalties and honoraria from unearned income to earned income.

In some cases, the statutory change will permit the individual to

receive a larger SSI benefit, while in other cases there will be no

effect or a reduced SSI benefit may result. We are also amending the

SSI regulations to clarify the definition of royalties.

EFFECTIVE DATE: August 24, 1994. The provisions of section 5034 of Pub.

L. 101-508 are effective for determinations of eligibility and benefit

amount beginning December 1, 1991.

FOR FURTHER INFORMATION CONTACT: Regarding this document--Duane Heaton,

Legal Assistant, 3-B-1 Operations Building, 6401 Security Boulevard,

Baltimore, MD 21235, (410) 965-8470; regarding eligibility or filing

for benefits--our national toll-free number, 1-800-772-1213.

SUPPLEMENTARY INFORMATION:

Background

Section 5034 of OBRA '90, enacted November 5, 1990, amended section

1612(a)(1) and (2) of the Social Security Act (the Act). Prior to this

amendment, the Act provided that royalties were counted as unearned

income under the SSI program unless the royalties were from self-

employment in a royalty-related trade or business. Honoraria also were

counted as unearned income. As unearned income, any expenses of

obtaining this income were not counted. Then, the first $20 of the SSI

beneficiary's income in a month was excluded, and the remaining

unearned income resulted in a dollar-for-dollar reduction in benefits.

This OBRA '90 amendment provides that any royalties earned by an

individual in connection with any publication of the work of the

individual, as well as that portion of any honoraria received for

services rendered, are earned income under the SSI program. The

provisions of section 5034 are effective for determinations of

eligibility and benefit amount as of December 1, 1991.

As a result of this statutory provision, the statutory earned

income exclusions, which in many cases are more generous than the

unearned income exclusions, will now apply to such earnings. Under the

earned income exclusions, SSA will exclude the first $65 of monthly

earnings plus 50 percent of the remaining earnings per month. Other

earned income exclusions, such as impairment-related work expenses,

also may apply.

In many cases, the application of the earned income exclusions will

result in considering a smaller portion of the royalties and honoraria

as countable income. However, in those cases in which the individual

receives a royalty for the publication of his or her work and incurs a

large amount of expenses in obtaining this income, but does not have a

royalty-related trade or business, the individual may have a greater

portion of his or her royalty treated as countable income. This is

because there is no statutory or regulatory provision that permits the

deduction of expenses from earned income that parallels the deduction

of expenses for obtaining unearned income. Further, we believe the

statute does not provide authority for us to permit, through

regulations, the deduction of expenses from earned royalty income.

Current regulations in Sec. 416.1121(c) state that royalties may

include, among other things, payments to the owner of a mine, oil well,

timber tract, or other natural resource for extraction of a product. In

the past, we interpreted this provision to mean that royalties include

the proceeds from timber sales as well as from timber leases.

We are clarifying this section of the regulations to make it clear

that proceeds from the conversion of a resource are not income. For

example, the term royalties may include the proceeds from timber

leases, but not from timber sales. A timber sale is the conversion of a

resource from one form (timber) to another (cash) as provided for in

Secs. 416.1103(c) and 416.1207(e). Thus, royalties would include fees

for the use of the land, but not payments resulting from a sale.

Under that definition of royalties, if an owner of timberland

enters into a long-term lease agreement which permits the lessee to

manage and cut timber, with payment to be dependent on the amount of

timber actually harvested, the payments to the lessor would be

considered royalties. However, a contract for the sale of standing

timber would not result in royalties. We propose to amend the

regulations to clarify the definition of royalties accordingly.

Final Regulations

We are revising Secs. 416.1110, 416.1111, and 416.1121 to reflect

the statutory changes of section 5034 of OBRA '90 and the change in the

definition of royalties as follows:

Section 416.1110, which lists what we consider to be

earned income, is revised by adding a new paragraph (e) to provide that

payments of royalties to an individual in connection with any

publication of the work of the individual are earned income. Also, that

portion of honoraria received in consideration of services rendered is

included as earned income. Honoraria that are earned income include

rewards and donations received in consideration of services rendered

for which no payment can be enforced by law.

Section 416.1111, which explains how we count each type of

earned income, is revised by adding paragraph (e), which provides that

payments of royalties to an individual in connection with the

publication of the work of the individual and honoraria, to the extent

received for services rendered, count at the earliest of the following

points: when received, credited, or set aside for the individual's use.

Section 416.1121(c) is revised by clarifying the

definition of royalties and adding a cross-reference to show that

payments of royalties to an individual in connection with the

publication of the work of the individual are treated differently from

other royalties.

Public Comments

These regulations were published as a Notice of Proposed Rulemaking

on October 8, 1993 (58 FR 52464). A 60-day comment period was provided.

We did not receive any public comments. We are, therefore, adopting the

regulations as proposed.

Regulatory Procedures

Executive Order No. 12866

We have consulted with the Office of Management and Budget (OMB)

and determined that these rules do not meet the criteria for a

significant regulatory action under E.O. 12866. Thus, they were not

subject to OMB review.

Regulatory Flexibility Act

We certify that these final regulations will not have a significant

economic impact on a substantial number of small entities because these

regulations affect only individuals and States. Therefore, a regulatory

flexibility analysis as provided in Pub. L. 96-354, the Regulatory

Flexibility Act, is not required.

Paperwork Reduction Act

These final regulations impose no additional reporting and

recordkeeping requirements subject to OMB clearance.

(Catalog of Federal Domestic Assistance: Program No. 93.807--

Supplemental Security Income)

List of Subjects in 20 CFR Part 416

Administrative practice and procedure, Aged, Blind, Disability

benefits, Public assistance programs, Reporting and recordkeeping

requirements, Supplemental security income.

Dated: June 28, 1994.

Shirley Chater,

Commissioner of Social Security.

Approved: August 11, 1994.

Donna E. Shalala,

Secretary of Health and Human Services.

For the reasons set out in the preamble, Part 416 of Title 20 of

the Code of Federal Regulations is amended as follows:

PART 416--[AMENDED]

1. The authority citation for Subpart K of Part 416 continues to

read as follows:

Authority: Secs. 1102, 1602, 1611, 1612, 1613, 1614(f), 1621,

and 1631 of the Social Security Act; 42 U.S.C. 1302, 1381a, 1382,

1382a, 1382b, 1382c(f), 1382j, and 1383; sec. 211 of Pub. L. 93-66,

87 Stat. 154.

2. Section 416.1110 is amended by adding a new paragraph (e) as

follows:

Sec. 416.1110 What is earned income.

* * * * *

(e) Certain royalties and honoraria. Royalties that are earned

income are payments to an individual in connection with any publication

of the work of the individual. (See Sec. 416.1110(b) if you receive a

royalty as part of your trade or business. See Sec. 416.1121(c) if you

receive another type of royalty.) Honoraria that are earned income are

those portions of payments, such as an honorary payment, reward, or

donation, received in consideration of services rendered for which no

payment can be enforced by law. (See Sec. 416.1120 if you receive

another type of honorarium.)

3. Section 416.1111 is amended by adding a new paragraph (e) as

follows:

Sec. 416.1111 How we count earned income.

* * * * *

(e) Royalties and honoraria. We count payments of royalties to you

in connection with any publication of your work, and honoraria, to the

extent received for services rendered, at the earliest of the following

points: when you receive them, when they are credited to your account,

or when they are set aside for your use. (See Sec. 416.1111(b) if you

receive royalties as part of your trade or business.)

4. Section 416.1121 is amended by revising paragraph (c) to read as

follows:

Sec. 416.1121 Types of unearned income.

* * * * *

(c) Dividends, interest, and certain royalties. Dividends and

interest are returns on capital investments, such as stocks, bonds, or

savings accounts. Royalties are compensation paid to the owner for the

use of property, usually copyrighted material or natural resources such

as mines, oil wells, or timber tracts. Royalty compensation may be

expressed as a percentage of receipts from using the property or as an

amount per unit produced. (See Sec. 416.1110(b) if you receive

royalties as part of your trade or business and Sec. 416.1110(e) if you

receive royalties in connection with the publication of your work.)

* * * * *

[FR Doc. 94-20627 Filed 8-23-94; 8:45 am]

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