II-5-2-1.Substantial Services Test - Self-Employment Earnings

Appeals Council Interpretation
SUBJECT : Substantial Services Test - Self-Employment Earnings
ISSUE : When determining if services in self-employment are substantial, should travel time be included in time devoted to a trade or business when the services or activities which the self-employed individual performs are “highly skilled”?
DISCUSSION : (Note: Prior to 1978, when a self-employed beneficiary had excess earnings, SSA imposed deductions only against months in which a beneficiary rendered substantial services in self-employment. Under the 1977 amendments to the Social Security Act (the Act), Section 502 of Public Law 95-216 amended Section 203(f)(1)(E) of the Act to eliminate the monthly measure of the retirement test except in the year (called the “grace year”) in which a person first receives Social Security benefits of a particular type. Therefore, for years after 1977, the issue in this interpretation is material only in a beneficiary's grace year.)
    Section 203(f)(4)(A) of the Act, before and after the 1977 amendments, provides that an individual is presumed to have been engaged in self-employment each month until it is shown to the satisfaction of the Secretary that such individual rendered no substantial services in a month. This section provides that the Secretary will, by regulations, prescribe the method and criteria for determining whether services rendered in self-employment are substantial.
    SSA regulations at 20 CFR 404.447 provide for a sequence of factors to be considered in the substantial services test. Time is the first factor considered. While the regulations do not specifically state that travel time is time devoted to a trade or business, 20 CFR 404.447(a) does state that “the time devoted to a trade or business includes all the time spent by the individual in any activity, whether physical or mental, at the place of business or elsewhere in furtherance of such trade or business” (emphasis added).
    Therefore, if the travel time is related to an individual's business activity, regardless of the nature of the services, it should be included in time devoted to an individual's trade or business.
    Whether travel is related to the individual's business activity must be considered on a case-by-case basis. For example, time spent in travel for which business deductions have been taken on a tax return will normally be considered as evidence that travel time is related to an individual's business activity. Conversely, time spent in commuting from an individual's home to the place of business will not normally be considered travel time related to the business activity. However, if the individual stops during the daily commute for business purposes, the entire time traveled will be considered time devoted to the business.
    Travel time should be included in time spent in self-employment regardless of the skill level of the services. The regulations do not suggest that all time which is included in the amount of time devoted to self-employment of a highly skilled nature must be spent performing a highly skilled activity. The regulations at 20 CFR 404.447(a)(1) provide that if an individual is engaged in a highly skilled occupation, then substantial services may have been rendered even if the individual worked less than 45 hours. It is the skill level for the occupation, and not each activity associated with the occupation, that is controlling.
INTERPRETATION : When determining if services in self-employment are substantial, the Appeals Council will consider travel time when such travel time is related to the business activity in which the individual is engaged, regardless of whether the nature of the services rendered is highly skilled.
APPLICATION : The Appeals Council will apply this interpretation in all cases that come before it involving the same issue.
EFFECTIVE DATE : December 7, 1979
CROSS-REFERENCE : Section 203(f)(4)(A) of the Act; 20 CFR 404.447.