This VA benefit, commonly referred to as “TDIU,” which stands for “Total Disability based on Individual Unemployability,” is partially determined based on a veteran’s ability to work. By completing VA Form 21-4140, veterans seeking this benefit must confirm that they have no “gainful employment.” The exact definition of “gainful employment” leaves many applicants wondering if income earned from rental property or other passive sources will work against their TDIU application.
To answer this common question fully and satisfactorily, it is first essential to understand a little bit about how the VA determines eligibility for TDIU.
In This Article About Getting TDIU While Being a Landlord:
- How Does Qualifying For TDIU Work?
- How Does The VA Define “Substantially Gainful Employment?”
- Is Rental Income Considered “Substantially Gainful Employment?”
- What Is Passive Versus Active Income, Earned Versus Unearned Income, And How Do They Affect TDIU Eligibility?
- Does The VA Ever Make A Mistake In Defining Earned Versus Unearned Income?
- How Much Rental Income Can I Make And Still Qualify For TDIU?
- Experienced Lawyers to Help You Apply for VA Disability
How Does Qualifying For TDIU Work?
When a veteran applies for a VA disability rating, the ultimate goal is to receive a 100 percent rating. Unless a veteran is so disabled that he or she requires SMC or Aid and Attendance, this is the maximum rating at which he or she can be paid. Unfortunately, the VA’s disability rating rules make achieving a 100 percent rating for a single disability extremely difficult for a veteran. Fortunately, a veteran can get that 100 percent rating in another way: Total Disability based on Individual Unemployability (TDIU or IU). If a veteran can show that their service-connected disability prevents them from working, they are entitled to TDIU compensation.
TDIU examines a veteran’s combination of disabilities to determine whether or not he or she is able to work as a result of those disabilities. To be eligible for TDIU, a veteran must be unable to find or maintain “substantially gainful employment” due to service-connected impairments. They must also meet the schedular standards of 38 CFR 4.16(a) OR have an extraschedular IU evaluation approved by Compensation Service under the provisions of 38 CFR 4.16(B).
Even if the disability(ies) is not assessed at or does not add up to 100 percent, if the VA concludes that a veteran is unable to sustain substantially gainful employment due to service-connected disabilities, the veteran will be paid at the 100 percent rate. For instance, a veteran with a 60 percent rating for a single disability, such as a low back issue, would meet the requirements according to the schedule. Alternatively, a veteran with several service-connected disabilities who has at least one condition classified at 40 percent and a cumulative total of 70 percent would also qualify.
The VA doesn’t usually give 100% Total and Permanent benefits for a single disability alone. They typically add up disabilities and veterans meet the criteria like this:
1. You have at least 1 service-connected disability rated at 60% or more disabling, or 2 or more service-connected disabilities—with at least 1 rated at 40% or more disabling and a combined rating of 70% or more—andTaken from the VA.gov page about unemployability
2. You can’t hold down a steady job that supports you financially (known as substantially gainful employment) because of your service-connected disability. Odd jobs (marginal employment), don’t count.
Here one of our VA disability lawyers talks about how SMC (Special Monthly Compensation) works to help you get more money for extra expenses related to your disabling condition every month.
How Does The VA Define “Substantially Gainful Employment?”
The VA defines substantially gainful employment as work in which non-disabled people earn wages that are comparable to the veteran’s particular occupation in the community where he or she lives. Significantly gainful employment is competitive (non-protected) work that pays more than the level set by the US Department of Commerce as the poverty line for a single individual. In 2021, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) set the poverty line for a single person under the age of 65 at $12,880. For example, if a veteran works 30 hours per week at a local retail outlet for $8.50 an hour, they will earn more than the poverty line and will not be eligible for TDIU. There are, however, two exceptions to qualifying for TDIU when a veteran makes more than the annual poverty threshold: sheltered employment and self-employment.
A veteran in sheltered employment works for someone who makes specific adjustments for their disability. Flexible scheduling for medical needs, frequent breaks, reduced productivity requirements, and other allowances not customarily granted to other employees and unlikely to be accessible from a private employer in a competitive marketplace are examples of this. Sheltered employment is frequently seen in businesses that are family-owned. Even if a veteran’s earnings surpass the poverty line, their occupation may not be considered “substantially gainful employment.”
For veterans with self-employment income, earnings alone cannot be used to approve a TDIU claim. This is because self-employed people have more control over their earnings. Evidence that a veteran would be unable to earn more than a poverty-level wage in a private, competitive work setting will be required by the VA.
Is Rental Income Considered “Substantially Gainful Employment?”
We’ve established that the income you report to the VA to determine TDIU eligibility cannot exceed the federal poverty line for the region in which you live. But we also know that earned income is not as important to the VA as “money earned via substantially gainful employment.” Gainful employment is defined as work that pays you more than the federal poverty level in your area. Only earnings from gainful employment are taken into account when determining your TDIU eligibility. So the fact is, you could win the lottery or receive an inheritance from your poor old Aunt Gertrude and it would still not be considered income earned from substantially gainful employment.
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The VA will, of course, take a look at your tax returns to take a closer look at your circumstances. The Veterans Benefits Administration undertakes cross-checks with the Social Security Administration, the IRS, and other agencies to ensure that veterans correctly report their income on VA Form 21-4140. For that reason, veterans must never try to game the system by concealing any income or other information when reporting to the VA. Your documents for your benefits should always be precise in order to maintain your credibility.
Perhaps the more important question regarding rental income is whether or not your rental income is gained through a business you run. If it’s not, rental income isn’t usually considered gainful employment. But are you running a business?
Remember, in most cases, you cannot be working to receive TDIU benefits. So, if you are not mowing the lawn, plowing the driveway, performing repairs, or otherwise actively engaged in maintaining the property you rent, you are not working or running a business. Yes, you are earning money, but this is considered passive income and should not affect your TDIU eligibility.
Learn More About Unemployability Ratings
Our favorite thing to do is get veterans the total and permanent ratings they deserve. Take a look at our Ultimate Guide to 100% TDIU to learn more.
What Is Passive Versus Active Income, Earned Versus Unearned Income, And How Do They Affect TDIU Eligibility?
Passive income is money acquired from an investment or previous work that continues to create money without requiring new effort. Examples of passive income include things like royalties earned from a previously written book, interest earned from investments in stocks, bonds, or cryptocurrency, and rental income. On the other hand, active income is money obtained in exchange for providing a service. Salaries, hourly earnings, tips, and commissions, for example, are all forms of active income.
The issue concerning TDIU and passive income can largely be explained by whether it is reported as earned or unearned income. When applying for TDIU, the VA requires some self-reporting on VA Form 21-8940. Most people will use the IRS definitions of earned income when completing the questions about earned income. If an item appears on a W2 Form, such as wages or as net income on a Schedule C or F, it is considered earned income. It’s unearned income if it appears anywhere else on your tax return. Excessive earned income (above the poverty threshold) will limit your eligibility for TDIU, but unearned income will have no bearing. However, that doesn’t rule out the possibility of the VA looking into your specific situation further.
Here is a video of one of our Veterans Disability Lawyers teaching you how to use our VA Disability Combined Ratings Calculator.
Interest, dividends, and capital gains, in general, will not impact your eligibility for TDIU. Things like gas, oil, or mineral extraction royalties, invention royalties, and copyright royalties filed on IRS Form 1040, Schedule E, are also not a problem. Copyright royalties are generally considered earned income only for presently working authors. A retired life insurance agent’s renewal commissions do not typically affect TDIU eligibility, but they will be regarded as earned income by the IRS and Social Security. Rental income may require further investigation by the VA to determine facts and circumstances, but it is almost exclusively considered to be unearned income by the IRS.
For passive income earned through real estate rental, the size and scope of the business can play a role in determining how that income is classified. For example, if you own several residential rental units requiring little maintenance, both the IRS and the VA consider this unearned income. This is also true if you own multiple warehouses that are all subject to net leases (tenants are liable for maintenance) or if you own a mini-warehouse complex with tenants coming in and out on a regular basis and no wages paid to employees.
On the other hand, if you run a bed and breakfast or motel with little or no payroll, both the IRS and the VA will likely consider it a business, and therefore active income, which qualifies as earned income. Likewise, the VA and IRS will consider it earned income if you operate a large apartment complex or multi-unit office with no paid management.
Here one of our VA disability lawyers goes over the questions Woods and Woods, The Veteran’s Firm, is often asked about veterans’ disability claims and appeals.
Does The VA Ever Make A Mistake In Defining Earned Versus Unearned Income?
Unfortunately, the answer to this question is an absolute yes. The VA makes mistakes on a pretty consistent basis. It is not uncommon at all for the VA to reject your claim because it incorrectly classifies your unearned income as earned income, resulting in a determination that you have earned income and continue to earn income above the federal poverty level.
Another common mistake often made by the VA during the initial application process occurs when a veteran receives short- or long-term disability benefits. This income is considered unearned, and the VA cannot use it to claim that your wages exceed the federal poverty level and consequently deny you a TDIU rating. Similarly, if you are a veteran who earns unearned income via passive investment income, a company ownership stake, or royalties from work previously completed, the VA cannot dismiss your TDIU claim by misinterpreting this money as earned income above the federal poverty threshold.
In this video, one of our certified VA disability lawyers talks about how passive income affects your employability benefits:
How Much Rental Income Can I Make And Still Qualify For TDIU?
Remember, if the income from your rental property is unearned income and you are not working or running a business to obtain that income, it is not considered gainful employment. Therefore, any income you make from that rental property is not factored in when determining if you have reached the poverty threshold for eligibility. There is no unearned income limit with TDIU. It is no different from the income you accumulate through your investments, inheritance, or winning the lottery, and it will play no part in whether or not you qualify for TDIU.
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However, it is worth noting that having too many rentals could be construed as having a job. It’s no secret that property management does require time. The VA would almost certainly investigate someone with a significant rental income. Every year, the Pension and Maintenance Center (PMC), which oversees TDIU and other programs, conducts Income Verification Matches with the Social Security Administration, the IRS, and the VA. When they find that a veteran’s TDIU income exceeds their threshold amount), they must inform the Veterans Regional Office (RO), who will take action. The RO can choose to do nothing or review the file and decide whether to conduct a Compensation and Pension (C &P) exam.
The most important thing to remember about your rental income when it comes to impacting your TDIU eligibility is what you are or are not doing with concern to the operation of the property itself. If you are actively engaged in any work to help maintain the property or the services provided by those who do maintain it, your TDIU eligibility may be questioned. If, however, you are simply collecting the revenue from your property rental, you have no reason to be concerned. There may be gray areas you have questions about, and you should discuss them with your attorney to know how to address them best. But, in general, rental property income properly managed will not affect your TDIU.
You don’t have to use a Veteran’s compensation lawyer that is nearby. We can work with you over the phone and apply or appeal electronically.
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Not if it’s a normal job. You can work for your cousin that overpays you and gives you a lot of accommodations that she wouldn’t give to anyone else. That’s what the VA calls a sheltered work environment. Individual Unemployability is for veterans that can’t keep a normal job. Any job that you list on a tax return and doesn’t cut you a lot of slack counts against you for TDIU.
Nope. Any kind of money that comes as a prize, inheritance, or lottery isn’t considered income by the IRS. As long as it isn’t income according to the IRS, it shouldn’t count against you for your TDIU claim. If you are an Uber or Grubhub driver, that counts as income and could hurt your TDIU claim. Talk to our team about your disability and lifestyle and we’ll answer your questions for free.
TDIU stands for Total Disability Individual Unemployability. The VA uses the term “Individual Unemployability” but many people add-on the TD part to emphasize that you are getting full compensation as if you have a 100% rating.