Lending money to someone on SSI: how to keep the loan from counting as income

Families lend money to relatives on Supplemental Security Income all the time: a parent helping an adult child with a disability through a car repair, a sibling covering a deposit. The problem is that SSI is a needs-based benefit with tight income and resource limits, and money that shows up in the recipient's account can reduce their check or end it. Whether the money counts depends on one thing: whether Social Security sees it as a real loan.

The rule is set out in Social Security's operating manual for claims staff, the Program Operations Manual System, or POMS. For the borrower, the cash from a bona fide loan isn't income. It does become a resource if the borrower still has it in the month after they received it, which matters because SSI's resource limit is low. If the arrangement isn't a bona fide loan, the cash counts as income in the month received, and that can cut the benefit for that month.

The five requirements

An informal loan between individuals can be oral or written, but Social Security only treats it as bona fide if it meets all five of these:

1. Enforceable under state law. The agreement has to be a valid contract where you live.
2. In effect when the money is provided. This is the one that sinks most family loans. Social Security's manual says money given with no contemporaneous obligation to repay can't become a loan at a later date. A note written after a caseworker asks about a deposit doesn't fix it.
3. An acknowledged obligation to repay. Both the lender and the borrower have to acknowledge the money must be paid back. A borrower who just feels responsible for paying it back isn't enough, and neither is a lender saying "pay me if you ever can."
4. A plan for repayment. The loan has to include a plan or schedule, with the borrower's express intent to repay from property or anticipated income. Future benefits can count as that income, as long as the loan says the money must be paid back.
5. A feasible plan. The schedule has to be realistic given the amount, the borrower's income and resources, and their situation. A $20,000 loan repaid at $5 a month won't look feasible.

A written promissory note signed on the day the money changes hands, with a payment schedule the borrower can actually keep, meets all five almost by design. Make the payments by check or transfer so there's a record, and keep a ledger. See keeping a payment ledger and proof of payment on a private loan. Note that Social Security's own forms where the lender and borrower describe the loan don't create a written loan by themselves. They only document what each side says.

The lender has rules too, and they matter if the lender is also on SSI or Medicaid. If the loan agreement is negotiable, meaning it could be sold to someone else, Social Security treats it as the lender's resource, valued at the outstanding principal balance. Payments the lender receives against principal are a conversion of that resource, not income. If the agreement isn't negotiable, it isn't a resource of the lender, but the principal payments the lender receives count as income. Either way, interest is income to the lender. A lender who is on benefits, or likely to apply for Medicaid, should get advice before lending.

Food and shelter are a separate category. When a relative provides rent or groceries as a loan instead of cash, Social Security applies its rules for loans of in-kind support and maintenance, with the same five requirements and the same rule that the agreement has to exist when the help is provided.

None of this makes lending to a relative on SSI difficult. It just has to be done in the right order: agree on the terms, sign the note, then hand over the money. See how to write a promissory note and choosing an installment schedule.

Sources

• Social Security Administration, POMS SI 01120.220, Cash loans
• Social Security Administration, POMS SI 00835.482, Loans of in-kind support and maintenance