TN 54 (01-93)

SI 00830.510 Royalties


Act as amended, Section 1612(a)(2)(F);
20 CFR 416.1121(c)

A. Policy

1. Definition

Royalties include compensation paid to the owner for the use of property, usually copyrighted material (e.g., books, music, or art) or natural resources (e.g., minerals, oil, gravel or timber). Royalty compensation may be expressed as a percentage of receipts from using the property or as an amount per unit produced.

To be considered royalties, payments for the use of natural resources also must be received:

  • under a formal or informal agreement whereby the owner authorizes another individual to manage and extract a product (e.g., timber or oil), and

  • in an amount that is dependent on the amount of the product actually extracted.

2. Sale of Natural Resources

An outright sale of natural resources by the owner of the land or by the owner of rights to use of the land constitutes the conversion of a resource. Proceeds from the conversion of a resource are not income.

3. Earned vs. Unearned Income

Royalties are unearned income unless they are:

  • received as part of a trade or business (see SI 00820.200 ff. for NESE), or

  • received by an individual in connection with any publication of his/ her work. Effective with SSI eligibility and benefit determinations for December 1991 or later, royalties earned by an individual in connection with any publication of his/her work are earned income (e.g., publication of a manuscript, magazine article, or artwork) (SI 00820.450).

4. Income or Windfall Profits Tax

Some documents concerning royalty payments will provide both a gross and a net payment amount. When the difference between the gross and the net figures is due to income taxes withheld or windfall profit tax deductions, we use the gross figure when determining income for SSI purposes.

5. Production or Severance Tax

When the difference between the gross and net figures represents a production or severance tax (e.g., most oil royalties will be reduced by this tax), we use the net figure when determining income for SSI purposes. The production or severance tax is a cost of producing the income and, therefore, is deducted from the gross income.

B. Procedure

1. Verification

  1. a. 

    Verify that payments received meet the definition of royalty (A.l. above) by examining the agreement between the parties involved. If the agreement is unclear, unavailable, or informal, contact the company or source of the payment.

  2. b. 

    Verify the amounts of royalty payments by examining documents in the individual's possession. If documents are unclear or unavailable, contact the company or source of the royalty.

  3. c. 

    If verification cannot be obtained by the above means, see SI 00830.005 A.5. - A.7. for additional verification procedures.

2. Documentation

Document the file by including copies of documents or indicating in the file (e.g., on an RC) information provided by the payment source concerning the nature, amount(s), month(s) of receipt, and, if appropriate, frequency of payments.

C. References

To Link to this section - Use this URL:
SI 00830.510 - Royalties - 01/25/1993
Batch run: 08/26/2014