Heckler v. Turner, 470 U.S. 184 (1985)
Heckler v. Turner
No. 83-1097
Argued October 9, 1984
Decided February 27, 1985
470 U.S. 184
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
Syllabus
Section 402(a)(7)(A) of the Social Security Act (Act) provides that the responsible agency of a State participating in the Aid to Families with Dependent Children (AFDC) program must, in determining a family’s need, take into consideration "any other income and resources" of the family. Before 1981, § 402(a)(7) also required the state agency to consider any "expenses reasonably attributable to the earning of any such income," and under such provision virtually all States deducted mandatory payroll-tax withholdings in determining "income." In 1981, the Act was amended by the Omnibus Budget Reconciliation Act (OBRA) so as to (1) eliminate the requirement of § 402(a)(7) that the State consider expenses "reasonably attributable" to the earning of income, and (2) provide in § 402(a)(8)(A)(ii) that the state agency shall "disregard from the earned income" a monthly flat sum of $75. Petitioner Secretary of Health and Human Services then advised the responsible state agencies that mandatory payroll deductions were to be included in the new $75 work expense disregard, which was to be taken from gross, rather than net, income, and the State of California issued regulations implementing petitioner’s directions. In a class action in Federal District Court challenging the California regulations, the court held that the regulations misconstrued the term "income" in § 402(a)(7) to mean gross income, rather than net income, and thereby incorrectly subsumed mandatory tax withholdings within the work expenses covered by the flat-sum disregard of § 402(a)(8)(A)(ii), rather than independently deducting such withholdings when calculating income under § 402(a)(7). The Court of Appeals affirmed.
Held: In calculating a family’s need for AFDC benefits, the responsible state agency must treat mandatory tax withholdings as a work expense encompassed within the flat-sum disregard of § 402(a)(8)(A)(ii), rather than as a separate deduction in determining "income" under § 402(a)(7) (A). Pp. 193-212.
(a) The Act makes no explicit provision for the deduction of mandatory payroll-tax withholdings, nor does it qualify the meaning of income. But a common-sense meaning of "earned income," as reflected in existing regulations, includes tax withholdings since portions of salary or wages withheld to meet tax obligations are "earned." Since earned income includes tax withholdings, so, too, does the broader category of "income." The congressional Reports accompanying the OBRA amendments make clear that Congress provided the flat-sum disregard in lieu of itemized work expenses, and there is no support in the statutory language or structure for any inference that Congress contemplated an additional but unmentioned deduction for tax liabilities. The administrative background against which the OBRA Congress worked also supports the conclusion that mandatory tax withholdings were among the items Congress intended to include within the flat-sum disregard. Pp. 193-199.
(b) The Court of Appeals erred in concluding that the substitution of the flat-sum disregard for the work expense disregard of § 402(a)(7) had no effect on the treatment of mandatory tax withholdings, because they always had been excluded from a working recipient’s "income" for purposes of § 402(a)(7) by virtue of the principle of "actual availability" of income, and thus should continue to be deducted from earnings as the first step in any determination of need. The principle of actual availability has not been understood to distinguish the treatment of tax withholdings from that of other work expenses. Pp.199-204.
(c) By concluding that the OBRA Congress could not have intended to include mandatory tax withholdings in the flat-sum disregard because such a rule would dilute financial incentives to work, the Court of Appeals ignored the congressional choices manifest in the departure from approaches previously favored. The legislative history indicates that Congress embarked on a new course, emphasizing work requirements over financial incentives. Pp. 204-208.
(d) Subsequent congressional action dispels any doubt as to the OBRA Congress’ intention that mandatory tax withholdings be treated as standard work expenses subsumed by the flat-sum disregard, not as an independent deduction. Particularly, the Deficit Reduction Act of 1984 (which became law after certiorari was granted in this case) amended § 402(a)(8) to provide that,
in implementing [the section], the term "earned income" shall mean gross earned income, prior to any deductions for taxes or for any other purposes.
The legislative history demonstrates that Congress enacted this provision in order to resolve the dispute presented here. Pp. 208-211.
707 F.2d 1109, reversed.
BLACKMUN, J., delivered the opinion for a unanimous Court.