Opinion ID: 2614152
Heading Depth: 1
Heading Rank: 5

Heading: The work-related expenses deduction

Text: In addition to disregarding a portion of earned income, as discussed above, a state AFDC plan must also provide that the state agency shall take into consideration in determining need any other income and resources [of any claimant] ... as well as any expenses reasonably attributable to the earning of any such income.... (42 U.S.C. § 602, subd. (a)(7); see 45 C.F.R. § 233.20, subd. (a)(3)(iv)(a).) In the Alameda action, counties took the position that Carleson's existing regulations interpreting and implementing the foregoing provision (see regulations EAS 44-113, 44-114, 41-309) improperly permitted AFDC applicants to deduct from their earned income all work-related expenses actually incurred, without regard to the reasonableness of the amount expended. The counties also contended that Carleson's regulations improperly permitted the exclusion from income of certain involuntary deductions, such as income tax withholding and pension fund contributions, without provision for including such amounts when ultimately refunded or paid to the employee. Finally, counties objected to Carleson's allowance of a standard deduction (ranging from $6 to $25 per month) for work-related food, clothing and incidental expenses, whether or not the employee had actually incurred expenses in that amount. The trial court held Carleson must amend or reinterpret his regulations to provide for the deduction of only a reasonable amount of work-related expenses actually incurred in producing income, up to certain maximum levels, and for the inclusion as deferred income of monies ultimately refunded or returned to the employee. We have concluded that the trial court erred in both respects. The legislative history underlying the work-related expenses deduction provision indicates that it was the intent of Congress to permit the exclusion of all such expenses, without regard to the amount expended, provided that such expenses were reasonably related to employment. The committee [Senate Committee on Finance] believes that it is only reasonable for the States to take these expenses [of earning income] fully into account. Under existing law if these work expenses are not considered in determining need, they have the effect of providing a disincentive to working since that portion of the family budget spent for work expenses has the effect of reducing the amount available for food, clothing and shelter. The bill has, therefore, added a provision in all assistance titles requiring the States to give consideration to any expenses reasonably attributable to the earning of income. (Italics added; 1962 U.S. Code Cong. & Admin. News, pp. 1959-1960.) In addition to the legislative history, HEW regulations provide that in determining eligibility for aid, only such net income as is actually available for current use on a regular basis will be considered.... (Italics added; 45 C.F.R., § 233.20, subd. (a) (3) (ii) (c).) (14) The legislative history, together with these regulations (which have been adjudged to clearly comport with the Act, King v. Smith, supra, 392 U.S. 309, 319 [20 L.Ed.2d 1118, 1126]; Lewis v. Martin, supra, 397 U.S. 552, 555 [25 L.Ed.2d 561, 565]), compel the conclusion that all work-related expenses must be considered in determining eligibility, for those expenses necessarily reduce the net income actually available for current support needs. To disallow a portion of those expenses as unreasonable would undermine the primary purpose of the deduction to provide further incentives toward employment. Moreover, Congress might well have concluded that the administrative costs of attempting to determine or review the reasonableness of any particular work-related expenditure outweighed the cost to the AFDC program of permitting the occasional deduction of excessive expenses. [20] A similar issue was raised in Williford v. Laupheimer (E.D.Pa. 1969) 311 F. Supp. 720, wherein the State of Pennsylvania attempted to impose a $50 maximum upon the work-related expenses deduction under section 602, subdivision (a). The court agreed that the limitation was not permitted by the Act and HEW regulations thereunder, and concluded as follows: And although we may sympathize with the state's attempt to alleviate the unquestionably and increasingly heavy burden of programs such as AFDC, the solution of such problems resides in Congress. To date, it has not seen fit to impose any limitation of work-related income deductions; the states are not free to do otherwise. (P. 722.) Of course, our interpretation of the Act and regulations thereunder does not foreclose the state from disallowing in whole or in part those expenses which are not reasonably attributable to the production of income. For example, if an automobile were not required by the nature of one's employment, or if other feasible means of transportation were available, the state could properly disallow at least a portion of the expense of acquiring and maintaining an automobile, not because the amount expended was unreasonable, but because the type of expenditure was not a bona fide work-related expense subject to the statutory deduction. (15) With respect to such involuntary deductions as tax withholding or pension plan contributions, it seems clear that such deductions from income are proper since only net income available for current use on a regular basis should be considered in determining eligibility. (45 C.F.R., § 233.20, subd. (a)(3)(ii)(c).) (16) The question arises whether, upon refund or repayment of these funds to the employee, the amounts refunded or repaid should then be considered as income. California has heretofore distinguished between nonrecurring lump sum payments (considered as personal property, rather than income, for purposes of eligibility), [21] and payments recurring over a period of two or more months (treated as income). (Regulation EAS 41-309.) Contrary to the trial court's holding in the Alameda action that all such payments be treated as deferred income, the HEW regulation cited above permits the state to consider as income only those funds received on a regular basis. Consequently, California's distinction between recurring and non-recurring payments comports fully with the federal requirements. We conclude that Carleson's original interpretation and implementation of the income-disregard exclusion and work-related expense deduction were in conformity with the Social Security Act and HEW regulations promulgated thereunder, and were not constitutionally infirm. Accordingly the judgment in the Alameda action (S.F. 22820) is reversed in its entirety, and the Alameda County Superior Court is instructed to vacate the peremptory writ of mandate issued therein and to order defendant Carleson to rescind emergency regulation EAS 44-111.25 promulgated pursuant thereto and to take whatever steps may be necessary to reinstate, with retroactive benefits, all prior recipients of aid improperly terminated from the AFDC program by reason of said regulation. Inasmuch as all the substantive issues presented in this controversy have been resolved and all appropriate relief afforded in S.F. 22820, no useful purpose would be served by further proceedings in Sac. 7898, S.F. 22816, or S.F. 22817. Accordingly, the appeal in Sac. 7898 is dismissed as moot, the alternative writs of prohibition and mandate issued in S.F. 22816 and S.F. 22817, respectively, are discharged, and the peremptory writs sought in those cases are denied.