Social Security Disability Insurance (SSDI) provides financial assistance to people who are no longer able to work as a result of a disability. So, you may wonder whether it’s possible to run a small business while receiving SSDI benefits.
You can surely start and run a small business while on SSDI as long as you do not go above the Substantial Gainful Activity limit. The Social Security Administration (SSA) will also ensure you are not engaging in substantial activity.
Read below for more information on how you can run your small business while receiving SSDI benefits.
Can I start a Small Business While Receiving SSDI?
Even having a very modest business on your record can have a negative impact on your likelihood of getting or maintaining Social Security Disability Insurance benefits.
The Social Security Administration may deny or reduce your benefits if they determine that your business activity meets their definition of substantial gainful activity (SGA). However, some people who are self-employed may still be eligible for these benefits.
The term “running a business” is broadly defined to include any form of self-employment, such as working as a bookkeeper, carpenter, gardener, handyman, consultant, freelancer, landlord, farmer, rancher, writer, blogger, or real estate investor.
In 2023, workers can earn up to $1,470 per month before they are considered to have exceeded the SGA limit. However, the SSA takes into account factors other than income when determining eligibility for benefits.
The Social Security Administration will either apply the “countable income test” or the “three tests” to evaluate whether or not your business activity qualifies as significant gainful activity. Which test the Social Security Administration uses depends on when you began operating your company and the reason it is being reviewed.
Social Security Taxes When You’re Self-Employed
When you’re your own boss, you wear two hats: those of employee and employer. This means that you are responsible for withholding the employer’s share of Social Security taxes from your paychecks in addition to contributing your own share.
Many self-employed people don’t receive paychecks, so instead of having Social Security taxes withheld from each payment, they pay their full amount due with their annual federal income tax return.
If you are self-employed, you must file IRS Form SE, Self-Employment Tax, to record your business’ net profit or loss. The federal government will use this information to determine the amount of Social Security payments to which you will be entitled.
The total rate of taxation for individuals who are self-employed is 15.3%, which is calculated by adding the employee and employer contributions to Social Security as well as the employee and employer taxes to Medicare.
What Happens If You Don’t File Taxes?
If you did not file a tax return reflecting your income from self-employment, you have a certain amount of time to file a return so that you can still earn credit from the Social Security Administration for the amount of time you worked and the income you made.
The return is to be submitted no later than three years, three months, and 15 days following the end of the tax year in which the income in question was earned.
For instance, if, for some reason, you failed to file a tax return in 2019 detailing your earnings from self-employment, you have until April 15, 2023, to do so. However, you will still be responsible for paying any late filing penalties and back taxes that have accumulated.
Trial Work Period (TWP)
The Trial Work Period (TWP) gives an SSDI beneficiary the opportunity to evaluate whether or not they are able to participate in the workforce or launch their own company. According to the rules of the TWP, an individual can keep their benefits even if they earn money over the TWP for nine months in a rolling 60-month period.
During the time that they are enrolled in the TWP, recipients of SSDI can continue to receive their entire benefit amount even if they have earnings through self-employment. There is no need for the months to be continuously in a row in order for them to count.
Every month during the rolling 60-month term in which the beneficiary earns more than the Trial Work Level (TWL) counts toward a trial work month. In 2023, this Trial Work Level is set at an income of $1,050 and 80 hours of monthly work.
The Social Security Administration will review your earnings at the conclusion of the 9-month Trial Work Period. Benefits are terminated if a beneficiary earns more than $1,050 or works more than 80 hours in a month out of the 6-month period. If they did not engage in substantial gainful activity in any one month over that 60-month period, the SSA will send them the full benefit amount.
The recipient can get their SSDI benefits back within five years if their business fails or they are unable to run it due to their condition. It is not necessary to submit a new application or wait for benefits to resume.
The Social Security Administration offers a program called PASS (or the Plan for Achieving Self-Support) to help with this sometimes confusing process. This program aims to financially assist beneficiaries who wish to become self-sufficient. It is most commonly associated with helping people go back into the workforce, but it also supports entrepreneurs.
Substantial Gainful Activity
When someone is self-employed, the hours worked do not always translate into their pay, especially in the early stages of a company’s development. In fact, it is not unusual for a business to lose money for the first several years.
Therefore, the Social Security Administration will examine the number of hours worked and the nature of the business duties being performed.
The Social Security Administration can reduce or discontinue a person’s benefits if it determines that the reasonable value of their work exceeds the benefit amount. In light of this, the Social Security Administration has established criteria measured through tests to determine whether or not a beneficiary’s current level of work constitutes Substantial Gainful Activity.
The three tests are as follows:
- Significant services and substantial income test
- Comparability test
- Worth of work test
If the recipient’s work in the business is determined to be SGA by any of these tests, their benefits will be terminated.
The Three Tests
If you are self-employed and applying for SSDI, or if you have been receiving SSDI benefits for less than 24 months, Social Security will use the three tests below to determine whether or not your business duties can be considered substantial gainful activity.
The Social Security Administration will start with the “Significant Services and Income” test. If the work you do is not considered to be SGA based on this test, then the Social Security Administration will apply the Comparability test and the Worth or Work test.
If these two tests find that your business activities constitute SGA, then your Social Security disability benefits will be terminated.
The Significant Services and Substantial Income Test
If you are performing significant services for your business or earning substantial income through those services, then you are considered to be engaging in SGA.
Whether your services are considered significant will vary depending on the nature of your business.
What are Significant Services?
If you are self-employed and the main employee of your business, your contributions and services for the company are immediately considered significant. If this is the case for you and your monthly income from the business is greater than $1,470, then you are considered to be engaging in SGA, and you will not be eligible for disability benefits.
If your business has other workers or co-owners, Social Security will consider your services to be substantial if you either manage the business for 46 or more hours per month or spend over half of the total time required to run the business per month.
Your services will be deemed “material” if you rent out land and are also involved in the management or production of the stock.
What is Substantial Income?
When calculating your income from self-employment, Social Security will deduct some costs from your business’s total revenue. Social Security will deduct the following from your earnings before determining whether or not you have a substantial income:
- Any free-of-cost assistance you may be receiving (like from family members)
- Free housing, appliances, or other resources (from a rehabilitation center, for example)
- Costs you incur because of your disability (such as needing a cab to get to work)
If you’re self-employed and bringing in more than $1,470 per month, that’s deemed “substantial income.”
But if your monthly earnings from self-employment are as much as your earnings prior to when your disability began, or as much as the amount other non-disabled people in the vicinity make when they are self-employed in a similar line of work as you, then that still qualifies as a substantial income.
Since self-employed individuals typically see a fluctuation in their monthly earnings, Social Security will consider the average income for these purposes.
The Comparability Test
If your work has not been found to be SGA based on the significant services and substantial income test, then the SSA will proceed to apply the next two tests.
The comparability test examines your abilities in relation to those of a comparable non-disabled individual in the same community. No matter how much money you make, if Social Security rules that your work is equivalent, it is considered SGA.
For this test, Social Security considers the following indicators:
- job responsibilities,
- required job skills,
- work efficiency,
- work hours,
- and energy spent in the work
This test simply compares the level of work activity rather than the value of the work.
Worth of Work Test
The worth of work test is a method for determining the value of the work that you do for a business. If the value of your work obviously exceeds $1,470 per month, or if the value of your work exceeds $1,470 per month if you hired someone to do the same kind of work, then your work is SGA.
The Countable Income Test
If you launch a business or start doing contract or freelance work for more than 24 months after you start receiving benefits, Social Security will utilize the “Countable Income Test” to determine if your employment is SGA.
Before everything else, the SSA first calculates your countable income by making some deductions from your self-employment income (as discussed above).
Regardless of the number of hours you put in at work, if your monthly countable income is less than $1,470, you will not have your benefits reduced or eliminated.
However, if your monthly income exceeds $1,470, then your benefits will be either reduced or terminated unless you can show that you did not provide significant services in that specific month. Whether or not you provided significant services will be determined using the Significant Services and Substantial Income test.
What Happens if My Claim Gets Rejected?
If the Social Security Administration denies your claim, that isn’t the end of the road; you still have the opportunity to file an appeal. The initial application approval rate for Social Security Disability Insurance is quite low, at only 38 percent. There are numerous reasons for denying a claim. However, some of the most typical reasons are as follows:
- Failure to provide sufficient evidence, such as medical records,
- Having an income that is too high to qualify
- Insufficient amount of work credits
- Having a condition that is not considered severe enough to meet the Social Security Administration eligibility requirements
- Failure to respond to the Social Security Administration
- Refusing to appear for Social Security Administration-required medical exams
- Refusing to comply with doctors’ orders
- Having a drug and alcohol dependency-related disability
In conclusion, you may still be qualified for Social Security Disability Insurance even if you have income from self-employment. Self-employment means you do things like owning a small business all by yourself, working as a freelance contractor, renting out property, or having your own company as a partner. You can still get SSDI benefits as long as you follow the rules set by the SSA.
