SSR 87-3c: SECTIONS 203(b) AND (f) AND 209 OF THE SOCIAL SECURITY ACT (42 U.S.C. 403(b) AND (f) AND 209) DEDUCTIONS -- EXCLUSION OF TRAVELING OR OTHER EXPENSES FROM WAGES
20 CFR 404.1026(a)(8)
McMahon v. Heckler, 1A Unempl. Ins. Rep. (CCH) ¶ 16,686 (USDC, E.D. of La. 1985)
- An administrative law judge (ALJ) found that the claimant had been overpaid $8,315.20 in old-age insurance benefits (OAIB) for the years 1978, 1979, and 1980. On appeal, the claimant argued that, in determining the amount of his excess earnings for work deduction purposes for those years, he should have been entitled to deduct from his gross wages the expenses that were work related. Specifically, the claimant sought to deduct from his gross wages the amounts expended in calendar years 1978, 1979, and 1980 for the maintenance of guard dogs and for the costs of transportation to job sites in his work as a security guard. Under 20 CFR 404.1026(a)(8), amounts paid specifically for traveling or for other ordinary and necessary expenses incurred in an employer's business are not wages if the employer identifies these traveling and other expenses either by making a separate payment or by specifically stating the separate amounts where both wages and expenses allowances are combined in a single payment. The evidence of record, however, failed to show that any part of the remuneration received by the claimant from his employer was intended as reimbursement for the expenses that the claimant had allegedly incurred in his employer's business. Instead, the evidence showed that the claimant's employer had reported and withheld taxes on the entire amounts paid to the claimant as wages. Consequently, the district court held that the ALJ's finding that the claimant had been overpaid $8,315.20 in OAIB for the period in question was supported by substantial evidence.
SCHWARTZ, JR., District Judge:
Plaintiff, James J. McMahon, seeks judicial review of the final decision of the Secretary of Health and Human Services denying his claim that he was not overpaid retirement insurance benefits under the provisions of 42 U.S.C. § 403(b) and (f).
Plaintiff was awarded retirement insurance benefits effective October, 1975 on the basis of his application filed September 24, 1975. Pursuant to the award, plaintiff received monthly retirement insurance benefit payments, including full benefit payments in all months of the calendar years 1978, 1979 and 1980.
Initially and upon reconsideration, it was determined by the Social Security Administration that plaintiff had received a net overpayment of benefits in the calendar years 1978, 1979 and 1980. Plaintiff was advised of the overpayment and the Secretary's intent to recover that amount. At plaintiff's request a full hearing was conducted on June 9, 1983, before an administrative law judge (hereinafter "ALJ"), with plaintiff and his attorney present. On July 29, 1983, the ALJ issued a recommended decision finding that plaintiff had received a net overpayment of retirement insurance benefits totalling $8,315.20 for the years 1978, 1979 and 1980. Plaintiff then sought review by the Appeals Council. On December 6, 1983, after considering the record, the decision of the ALJ, and the arguments of plaintiff, the Appeals Council concluded that there was no basis for granting the request for review. Thereafter the decision of the ALJ became the final decision of the Secretary.
The claimant filed an application for retirement insurance benefits on September 24, 1975. The Social Security Administration established that he was born on October 10, 1910. The claimant became entitled to retirement insurance benefits effective October, 1975, the month he attained age sixty-five. At the time he filed his application for retirement insurance benefits, the claimant stated he agreed to file an annual report of earnings with the Social Security Administration when required. Based on the evidence in the file, claimant was paid retirement insurance benefits for all months in the calendar years 1978, 1979 and 1980.
In November, 1981, claimant reported that he earned $4,838.00 in the calendar year 1978. Based on these reported earnings, it was determined that the claimant was overpaid $419.00 in retirement insurance benefits in 1978. That overpayment amount was subsequently recovered.
On March 15, 1982, claimant stated, in writing, that he had earned wages of $7,181.14 in 1978. Additionally, he submitted an Annual Report of Earnings statement showing that he earned $13,204.91 in 1979 and $11,039.10 in 1980. He submitted W 2 forms for 1978, 1979 and 1980 confirming payment of these wages. Based upon these reported earnings and after making necessary adjustments in the claimant's monthly benefit amount, the Social Security Administration determined that claimant had incurred a net overpayment of $8,315.20.
The claimant was advised of the overpayment by letter on or shortly after June 15, 1982. On July 23, 1982, claimant filed a request for reconsideration which was subsequently denied.
The claimant does not dispute the amount of earnings reported on his W 2 forms for 1978, 1979 and 1980. He does not claim that he should be entitled to a waiver of recovery of overpayment of retirement insurance benefits. He argues that he should be entitled to deduct from his gross earnings traveling or other bona fide ordinary and necessary business expenses, and that such business expenses should not be considered "wages" for deduction purposes.
Plaintiff worked as a security guard for Pendleton Guard and Security Services, Inc. in 1978, 1979 and 1980. According to claimant, a dispatcher at Pendleton logged his work activity on a time sheet by indicating the number of hours worked and the client for which the work was performed. The claimant was paid an hourly wage based upon a rate determined for that particular client. The rate of pay the claimant related was often determined by the location of the security work, the distance traveled to work and whether there was a need for an armed guard. The claimant further indicated that a security guard was paid hourly, based on minimum wage, plus 20/25 cents more when a commissioned (armed) officer was utilized. Claimant was paid for those hours he spent on the job. Normally, he was not paid for travel to and from a specific job. However, the claimant admitted that he was paid expenses three times during the three years in question when his travel to and from a particular job exceeded 75 miles. The claimant stated that he would not travel to a specific job which, for example, required an hour's travel time unless he was compensated for the travel. He indicated he was paid extra money for mileage or use of his car. He stated that high mileage was reflected in the amount paid for a particular job. It was difficult for his employer to break down the amount of expenses for bookkeeping reasons. Later in his testimony, however, claimant indicated that, for example, travel to LaPlace was sometimes compensated at a higher rate and sometimes was not compensated at a higher rate depending on how much his employer charged for that particular work. When an employee had traveled significant distances at a low rate of compensation, the claimant stated that his employer's dispatcher would assign a better job to the same employee next time which would pay him a better rate.
The claimant further testified that he was never specifically reimbursed for the use of his dogs which he took to jobs. Claimant admitted he was keeping 3-4 German Shepherds before he started security work. He raised the animals as "show dogs." He was not engaged in breeding as a business.
The issue before the Court is whether the final decision of the Secretary that plaintiff had received overpayment of retirement insurance benefits in the net amount of $8,315.20 is supported by substantial evidence.
The limited role of the Court on judicial review under 42 U.S.C. § 405(g) is to determine whether there is substantial evidence in the entire record to support the fact findings or decision of the Secretary, as the trier of facts, and not to reweigh the evidence, or try the issues de novo, or substitute the judgment of the court for that of the Secretary. Jones v. Heckler, 702 F.2d 616 (5th Cir. 1983). If supported by substantial evidence, the Secretary's findings are conclusive and must be affirmed. Richardson v. Perales, 402 U.S. 389 (1971); Allen v. Schweiker, 642 F.2d 799 (5th Cir. 1981).
Substantial evidence is more than a scintilla, less than a preponderance, and is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Richardson v. Perales, supra. It must do more than create a suspicion of the existence of the fact to be established, but "no substantial evidence" will be found only where there is a "conspicuous absence of credible choices" or "no contrary medical evidence." Hemphill v. Weinberger, 483 F.2d 1137 (5th Cir. 1973); Payne v. Weinberger, 480 F.2d 1006 (5th Cir. 1973).
It is conceded that plaintiff's gross earnings in the calendar years 1978, 1979 and 1980 were $7,181.14, $13,204.91 and $11,039.10, respectively. At issue here is whether expenses related to the work product of those earnings are to be deducted from the earnings for the purpose of determining the amount of excess earnings. The amount of excess earnings, in turn, figures in the computation of retirement benefit amounts due the recipient thereof.
Plaintiff specifically seeks to deduct from gross earnings, amounts expended in the calendar years 1978, 1979 and 1980 for the maintenance of guard dogs and costs of transportation to the job sites in his work as a security guard. In his testimony and written statements to the Social Security Administration, plaintiff suggested that portions of payments from his employer were intended to cover those expenses. Review of plaintiff's tax returns and records for the calendar years in question establish that his earnings were reported as employee compensation rather than self-employment income.
Section 203(b) and (f) of the Social Security Act, 42 U.S.C. § 403(b) and (f), provides, in pertinent part, as follows:
(b) Deductions, in such amounts and at such time or times as the
Secretary shall determine, shall be made from any payment or payments
under this title to which an individual is entitled, and from any payment
or payments to which any other persons are entitled on the basis of such
individual's wages and self-employment income, until the total of such
deductions equal -- (1) such individual's benefit or benefits under
section 402 for any month, and (2) if such individual was entitled to
old-age insurance benefits under section 402(a) of this title for such
month, the benefit or benefits of all other persons for such month under
section 402 based on such individual's wages and self-employment income,
if for such month he is charged with excess earnings, under the provisions
of subsection (f) of this section, equal to the total of benefits referred
to in clauses (1) and (2). If the excess earnings so charged are less than
such total of benefits, such deductions with respect to such month shall
be equal only to the amount of such excess earnings. * * * (f) For the
purposes of subsection (b) of this section --
* * *
- (5) An individual's earnings for a taxable year shall be (i) the sum of his wages for services rendered in such year and his net earnings from self-employment for such year, minus (ii) any net loss from self-employment for such year.
* * *
The term "wages" is generally defined as "remuneration paid . . . for employment." Pursuant to 42 U.S.C. § 405(a), granting the authority to make rules and regulations necessary to the effectuation of the Social Security Act, the Secretary has promulgated 20 CFR 404.1026(a)(8) which provides as follows:
- 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 are combined in a single payment.
It has been held that in promulgating such regulation, the Secretary neither exceeded the authority granted under Section 205(a) of the Social Security Act nor acted in a arbitrary manner. Thompson v. Weinberger, 548 F.2d 1122 (4th Cir. 1976); Colby v. Harris, 622 F.2d 644 (2d Cir. 1980).
Plaintiff provided the Secretary with no evidence from his employer indicating to what extent, if at all, remuneration he received was intended as reimbursement or to cover expenses such as transportation and maintenance of guard dogs. In fact, a wage and tax statement for the calendar year 1978 completed by plaintiff's employer reflects the receipt of $7,181.14; amounts which plaintiff seeks to deduct therefrom are not reflected. As the court in Thompson observed, "it is not reasonable to assume that an employer would pay Social Security tax on expenses rather than identifying the amount paid." Neither a statement by plaintiff's employer nor plaintiff's testimony at the administrative hearing that premium rated jobs were offered plaintiff on the basis of his having an automobile or having guard dogs are inconsistent with the Secretary's position; it is reasonable to expect that, because plaintiff could supply a unique service or travel to more distant job sites that he would be compensated at a higher rate than other guards.
Plaintiff cites the so-called "traveling salesman cases" which allow deductions from earnings of traveling salesman for reasonable traveling expenses though not expressly designated as such or separately reimbursed by the employer. Sayer v. Robinson, 360 F.Supp. 199 (W.D. La. 1973); Joyner v. Ribicoff, 206 F.Supp. 874 (W.D. Va. 1962); Miller v. Ribicoff, 195 F.Supp. 534 (W.C. A.C. 1961). However, other districts have reached opposite conclusions (see Dearing v. Flemming, Vol. 1 CCH Unemployment Insurance Reporter, ¶ 10,262.310 (N.D. Ohio 1962); Warren v. Ribicoff, Vol. 1 CCH UNEMPLOYMENT INSURANCE REPORTER, ¶ 10,262.310 ;(S.D. Iowa 1961), and where the reasoning in those decisions has not been rejected outright in subsequent appellate court decisions (see Colby v. Harris, supra), its applicability has been carefully limited to those fact situations involving traveling salesman. Thompson v. Weinberger, supra. In holding the Secretary's exercise of her authority in promulgating 20 C.F.R. § 404.1026(a)(8) permissible, the Court in Thompson observed that a holding otherwise would result in the anomalous situation of permitting an employee to receive a higher retirement benefit on the basis of the higher unadjusted gross earnings figure reported by his employer, while permitting reduced deductions from those benefits based on adjustment to gross earnings for ordinary and necessary expenses. The law as applied in the instant case by the Social Security Administration insures uniform treatment of wages for all purposes. Hence, the system is not unfair as plaintiff seems to suggest. While a self-employed individual is allowed to designate and deduct expenses, the resulting adjusted earnings figure also forms the basis for computation of benefit amounts.
Plaintiff's gross earnings for the years in question are undisputed. Plaintiff's employer did not pay separate amounts for the items plaintiff claims as expenses, nor did his employer specifically designate such amounts as "reimbursement of expenses" at the time they were paid. Plaintiff's employer reported the entire amounts paid to plaintiff as wages, and paid withholding taxes on the full amounts. In light of those facts and the administrative record, the ALJ's finding that plaintiff received a net overpayment of retirement insurance benefits totalling $8,315.20 is supported by substantial evidence.
It is recommended that defendant's motion for summary judgment be GRANTED.
Failure to file written objections to the proposed findings and recommendation contained in this report within ten (1) days from the date of its service shall bar an aggrieved party from attacking the factual findings on appeal. Nettles v. Wainwright, 677 F.2d 404 (5th Cir. 1982).
The Court, after considering the complaint, the record, the law applicable to the case, and the Magistrate's Findings and Recommendation, hereby approves the Magistrate's Findings and Recommendation and adopts it as its opinion herein. Accordingly,
It is ordered that Defendant's Motion for Summary Judgment be Granted.
 The regulations on the kinds of work and earnings that are included or excluded for purposes of Social Security coverage were recodified effective March 27, 1980. See 45 FR 20074-20096 (1980) (recodified in 20 CFR 404.1001-404.1096). The provisions of the regulation cited in this Ruling have been rewritten as part of the recodification, but not substantively changed, and now appear in 20 CFR 404.1045.