For many people who desire to work for themselves and be their own boss, self-employment is a popular alternative. Self-employment may affect an individual’s Social Security Disability Insurance (SSDI) benefits.
Self-employment can have a variety of effects on SSDI benefits. The earnings cap, self-employment tax, countable income, and company costs may all be impacted. Self-employed people must accurately declare their income and maintain thorough records to guarantee that their benefits are calculated correctly.
This article will examine ten ways working for yourself can affect your SSDI benefits.
1. Earnings Limit
The earnings cap is one of the main ways self-employment can impact SSDI benefits. Although SSDI recipients are permitted to work and earn money, there is a cap on how much they can make.
The limit on earnings is set at $1,470 per month in 2023. Benefits may be lowered or terminated if a beneficiary earns more than this sum.
The wage ceiling for self-employed people is determined differently. Instead of looking at the person’s gross earnings from self-employment, the Social Security Administration (SSA) considers their net earnings.
Business expenses are subtracted from gross earnings to determine net earnings. The SSA will assess whether the person’s benefits should be scaled back or terminated by comparing their net earnings to the earnings limit.
2. Reporting Income
Self-employed people are required to regularly disclose their income to the SSA. It involves disclosing both revenues and outlays for the company. Inaccurate income reporting can lead to overpayments or underpayments of benefits, which can be challenging to fix.
It is crucial for self-employed people to maintain thorough records of their income and expenses and to submit these documents to the SSA on time. They will no longer owe the SSA any money, and their benefits will be computed accurately.
- Self-Employment Tax
A self-employment tax, a fusion of Social Security and Medicare taxes, is levied on self-employment income. These taxes are frequently deducted from employees’ paychecks. However, self-employed people are liable for covering these taxes on their own.
The self-employment tax may lower the amount of net self-employment earnings, which may impact the person’s benefits. Self-employed people should know their tax responsibilities and plan accordingly to pay their taxes and keep their perks.
4. Countable Income
The SSA considers additional sources of income in addition to the earnings ceiling when determining SSDI compensation. It includes countable income—all money that is not legally prohibited.
Income from investments, rental income, or other sources may be countable for self-employed people. Self-employed people should be aware of their countable income and report it to the SSA as necessary.
5. Business Expenses
When determining their SSDI payments, self-employed people can deduct specific business expenses from their net earnings. It covers costs like office supplies, technology, and travel fees.
The SSA, however, has strict guidelines about what expenses are deductible and how they must be reported. To ensure they receive the maximum benefit they are entitled to, self-employed people should be aware of these regulations and maintain precise records of their company expenses.
6. Continuation Of Benefits
Self-employed people who get SSDI benefits may be allowed to keep getting payments even while working. It is known as the ‘continuation of benefits’ scheme.
Beneficiaries of this program can continue receiving benefits for up to nine months while trying to start or restart their own businesses.
Beneficiaries must, however, fulfill several conditions to continue receiving benefits, such as regularly reporting to the SSA the income and costs they incur through self-employment.
7. Substantial Gainful Activity
The SSA refers to employment done for money or profit that requires significant physical or mental activity as ‘substantial gainful activity (SGA). Individuals may be deemed ‘not disabled’ and lose their benefits if they participate in SGA.
It might be difficult for self-employed people to determine whether their work qualifies as SGA. The SSA considers several elements while making this decision, including the worker’s time and effort commitment, the nature of the work, and the wage received.
Self-employed people should be familiar with the SGA regulations and how they relate to their circumstances. They should speak with an experienced attorney or advocate to determine whether their task falls under the SGA.
8. Trial Work Period
For SSDI beneficiaries who want to test their employment readiness without jeopardizing their benefits, the SSA offers a ‘trial work period’ (TWP). Beneficiaries can work and make money during the TWP without it having an impact on their benefits.
The TWP can be a significant opportunity for self-employed people to launch or restart their businesses without jeopardizing their benefits. Beneficiaries must appropriately disclose their income to the SSA during this time because the TWP’s rules are intricate.
9. Medical Reviews
SSDI recipients are subject to yearly medical evaluations to determine if they still meet the criteria for disability. These evaluations ensure that claimants only benefit if their debilitating condition prevents them from working.
Medical assessments can be particularly problematic for independent contractors. To confirm that the person is still incapacitated and unable to work, the Social Security Administration (SSA) may need more proof.
Those who work for themselves should be prepared to thoroughly explain their medical condition and how it affects their capacity to do their jobs.
10. Impact On Benefits
Finally, independent contractors must comprehend how their income and other variables may affect their SSDI benefits. If they can earn more than the earnings cap through self-employment, working and earning money in some situations may even boost their benefits.
However, benefits may be reduced or eliminated in some circumstances due to employment and income generation. Before starting or growing a business, self-employed people should carefully weigh their options and the potential impact on their benefits.
Impact On Medicaid Benefits
Many disabled people rely on Medicaid and SSDI benefits for their medical expenses. Self-employment may also impact Medicaid benefits because SSDI and Medicaid eligibility are frequently linked.
Self-employed people should be aware of the potential effects of their income and other factors on their Medicaid eligibility and make plans appropriately to ensure that they continue to obtain the necessary healthcare coverage.
Working With a Vocational Rehabilitation Counselor
Working with a vocational rehabilitation counselor (VRC) might benefit disabled self-employed people. The SSDI and Medicaid systems can be navigated better, resources and accommodations can be found, and VRCs can help develop business plans.
Self-employed people who work with a VRC can achieve their business objectives while making sure they are making the most of the available resources and perks.
Types Of Self-Employment
Choosing the form of self-employment a beneficiary is currently engaged in or intends to participate in is the first step in figuring out when they qualify as self-employed.
These distinctions are crucial because the Social Security Administration may regard various forms of self-employment differently. It might be quite difficult to determine which type of self-employment a beneficiary is engaged in.
How does self-employment affect Social Security disability?
Self-employed individuals may qualify for SSDI if they have paid Social Security taxes. While employees pay into the Social Security system automatically when taxes are deducted from their paychecks, self-employed workers must pay these taxes on their own.
In cases where they are unsure, CWICs (community work incentives coordinators) should consult their neighborhood Social Security Field Office. The most typical forms of self-employment are mentioned in the sections below:
1. Small Business Ownership
This type of self-employment is probably the most prevalent and straightforward to recognize. When a beneficiary owns all or a portion of a company, whether large or small, and receives money from providing services from that company, that beneficiary is said to own a small business.
Small businesses can be set up as sole proprietorships, partnerships, limited liability companies (LLCs), or corporations, among other organizational forms. A beneficiary may own a firm or business jointly with other owners or alone.
For social security reasons, a person who holds stock in a company is only regarded as self-employed if they render some kind of service or conduct work for the company.
Depending on the position the person holds inside the company, it might be possible for them to be seen as an investor but not considered self-employed or earning an income. The rules that apply to companies that are incorporated are highly complex.
2. Independent Contractors
Some people work for companies or other organizations under contracts rather than as employees. Instead of being considered workers, independent contractors are a particular category of self-employment.
According to the common law norm, all indications of control and independence must be taken into account when deciding whether a person is an employee or an independent contractor. The information is divided into three primary groups:
- Does the organization have the right to control how the employee carries out the particular duty for which they were hired?
- Does the organization have the right to control and direct the workers’ business and financial activities?
- A written agreement between the parties demonstrates the kind of connection the parties planned to establish and is a crucial piece of evidence. The parties’ intentions are demonstrated by a written contract designating the employee as an independent contractor. The facts and settings in which a worker provides services are deciding factors.
Occasionally, CWICs will come across circumstances in which a beneficiary is being improperly treated by an employer as an independent contractor while they meet the requirements to be categorized as an “employee.”
Beneficiaries may occasionally be treated as independent contractors to avoid paying the minimum wage or the employer taxes linked to having workers. All this is important as self employed individuals have to accurately report their income and pay social security taxes to be eligible for SSDI benefits.
3. Statutory Employees
Workers from four occupational areas who provide services under predetermined conditions are considered statutory employees. Even though these workers do not fall under the common-law definition of an employee, Congress decided to include them as statutory employees rather than as self-employed people because of how similar their working conditions are to those of those who do.
Statutory employees include:
- Agent or commission drivers who pick up and deliver laundry or dry cleaning for another person or who transport meals or beverages (other than milk);
- Full-time life insurance agents that work primarily for a single provider;
- Homecare providers who follow the instructions of the client to whom they are rendering services; and
- Salespeople who are on the road or in cities and are employed full-time by one business or person.
4. Statutory Non-Employees
There are only three types of statutory non-employees: direct sellers, companion sitters, and licensed real estate agents. For all federal tax reasons, including income and employment taxes, they are regarded as self-employed if:
- Most of the money they receive for their work as real estate agents, pet sitters, or direct salespeople is based on the output, such as sales, rather than on the number of hours they put in.
- Their services are provided following a written agreement that states they will not be considered employees for federal tax purposes.
Beneficiaries who satisfy these requirements are regarded as self-employed by the IRS and the Social Security Administration.
Unusual Self-Employment Situations
It might be challenging to categorize some activities as hobbies, self-employment, or paid work. The following are the situations CWICs come across most frequently:
1. Ministers And Members of The Clergy
Unless a minister has asked for and been granted an exemption from SECA (self-employed contributions act) taxes, services rendered by ministers or other members of the clergy are normally regarded as self-employment for Social Security coverage purposes.
2. Directors of Non-profit Organizations
Beneficiaries occasionally seek to launch and run a nonprofit that they think of as a type of self-employment. An Executive Director or other salaried manager of a non-profit organization that has been granted 501(c)(3) status by the Internal Revenue Service is not regarded as a self-employed person.
3. Artists And Authors
When deciding whether income from selling works of art or receiving royalties from published written works qualifies as self-employment income, The SSA uses the same principles as those outlined earlier. Some activities start as part-time with no plans for the recipient to ever turn a profit; as a result, they typically do not qualify as engaged in commerce or business.
For instance, if a beneficiary receives a royalty payment for goods that were first created as a hobby, the payments will not be regarded as ‘earned’ during the time that the beneficiary continues to offer the same services or goods to turn a profit.
However, any income received may be regarded as self-employment income if the beneficiary continues to offer the same services or goods to turn a profit.
4. Farmers
Unless they are engaged as a farm owner’s employee, those who receive benefits from farming are typically regarded as self-employed. The laws controlling how agricultural income is counted by the SSA and the IRS are incredibly complicated and depend on each person’s specific situation.
Conclusion
Self-employment is an alternative that people with disabilities who desire to work might find rewarding and meaningful. Self-employed people must, however, be aware of the potential effects of their work earnings on their SSDI benefits.
People may make educated decisions about their businesses and guarantee they obtain the full benefits they are entitled to by being informed and following the SSA rules and regulations closely.
