Many people who solely rely on Social Security Disability Insurance (SSDI) benefits have trouble making ends meet. So, it would be much better if they knew in advance whenever their SSDI benefits would be cut. But under what circumstances does SSDI get cut?
Your SSDI payment may get reduced or completely cut off if you start working, have received worker’s compensation benefits, get an offset from a creditor, purchase Medicare Premiums, or apply for early benefits. Whenever there is an unexpected change to your qualifying conditions, such as your disability or income, you can expect to see a change reflected in your SSDI benefits.
There are a variety of reasons why your SSDI gets cut in these situations, and while the change may range from subtle decreases to being outright cutoff, these events are generally easy to anticipate.
We’ll talk about these reasons and more on how to know whether your SSDI will be cut below.
The Formula Used to Determine Social Security Payments
The Social Security Administration (SSA) records and uses your annual earnings and the portion of those earnings that are subject to Social Security taxes to calculate your retirement benefits.
Your monthly benefit will increase in proportion to the amount of money you earned while you were employed (as well as the amount of money you paid into the Social Security system in the form of payroll or self-employment taxes) up to a set limit. The set limit in 2023 is $4,555.
The Social Security Administration only considers your top 35 years of earnings for calculating your benefit, even if you’ve paid into the system for longer than that. In the event that you did not make any contributions to the system for at least 35 years, a value of 0 will be used to represent those years.
After you have applied for benefits, these earnings will be adjusted or indexed to account for inflation and will be used to compute the primary insurance amount (PIA). The PIA is a representation of the benefit that you will be eligible to receive once you reach your full retirement age, or FRA, as Social Security refers to it.
The FRA for those born between 1943 and 1954 is 66 years old. The age increases by two months per year for those born after 1954, reaching 67 for those born in 1960 or later.
Another major consideration is when you begin receiving Social Security benefits. You are eligible to start receiving benefits as early as the age of 62.
However, if you don’t wait until your FRA to claim benefits, you’ll see a permanent reduction in your payout. However, if you delay receiving your benefits past your FRA up to age 70, your monthly benefit will increase by 8% per year.
At that point, the benefits will have reached their maximum, and there will be no further reason to delay.
How to Know if Your SSDI Will be Cut
In this section, we’ll discuss various reasons for which the SSA might cut your SSDI.
Receiving Retroactive Benefits
If you wait until after you reach your full retirement age to start collecting benefits, the amount you receive each month will be higher for the rest of your life.
But you also have the choice to apply for a lump sum payment equal to up to 12 months’ worth of benefits at one time.
Nevertheless, if you choose to pay this amount in a single payment, it will not be reflected in any of your subsequent monthly checks. Therefore, the small increase in payments per month that you might anticipate at age 70 will be somewhat reduced.
Also, if you plan on applying for retroactive benefits, know that you will need a lot of documented medical evidence to prove the actual onset of your disability vs. when you applied for SSDI benefits.
Returning to Work
If you receive Social Security benefits but worked before the age of full retirement, the Social Security Administration will withhold $1 from your payment for every $2 in earnings over the maximum allowed amount.
This maximum amount for 2023 is set at $21,240. The deduction shifts to $1 for every $3 you earn over $56,520 in the year that you reach full retirement age. The deductions stop the month that you reach the age required for full retirement benefits.
Plus, the Social Security Administration will likely increase your benefits once you reach FRA in order to account for the income it previously withheld.
Applying for Early Benefits
The full retirement age for Social Security purposes is 66 or 67 for most people retiring these days, depending on the year of birth. However, if you are eligible, you can start receiving your Social Security retirement benefits as early as age 62. If you’re short on funds, it may help, but, as mentioned earlier, it comes with certain drawbacks. Your benefit amount will decrease immediately and irrevocably.
According to a survey involving 1,727 U.S. adults aged 24 and older in 2020, it was found that nearly three-quarters of baby boomers (73%) and the vast majority of Gen Xers (90%) and millennials (97%) confuse the age at which they are entitled to full retirement benefits.
According to the same survey, baby boomers planning to retire in the near future had larger income expectations than real long-term retirees.
What are the potential repercussions of receiving benefits early?
So, let’s say you’ve decided to start collecting Social Security at age 62 instead of waiting until you reach the full retirement age of 67. If you continued to receive benefits for an additional sixty months, your monthly Social Security payment would decrease by thirty percent.
If you are qualified for a monthly payment of $1,000, then you will only receive $700. That is a sizeable portion of the money to give up, not to mention the fact that your check will be smaller going forward throughout your life.
If you are considering starting your benefits early, it is in your best interest to do some quick math to determine how much money you will be giving up as a result of this decision.
Waiting until age 70 to start collecting Social Security benefits will increase your payments by 8 percent per year. However, your benefits will not rise if you delay claiming them until after age 70.
Getting An Offset
Reduced Social Security payments could also be due to an offset. This occurs when a creditor attempts to collect a debt by using the benefits you receive. Offsets may occur between various types of debts, such as:
- Student loans
- Child support or alimony
- Unpaid taxes
The first $750 of your Social Security check is safe from taxation, thanks to federal restrictions. However, if a debt is found to be your responsibility, the SSA will deduct an amount from your benefits every month until the debt has been settled in full.
You will be eligible to receive the full amount of your benefit once all offsets for debts have been satisfied. In the meantime, you’ll need to make do with the deficit.
Workers Compensation
Beginning in 1965, the SSA was required by law to limit your Social Security disability benefits if you receive Workers’ Compensation payments in addition to those benefits.
The state of Washington is a so-called “reverse offset state.” To avoid having your Social Security benefits decreased, Washington state and federal law allow for a reduction in your Workers’ Compensation benefits instead.
The reason you may see a decrease in one of your benefits is that there is a limit on how much you can get from Worker’s Compensation and SSA combined.
Medicare Premiums
The eligibility age for Medicare is 65. If you enroll in Medicare Part B, the government will take money out of your Social Security check to pay for your premiums. Medicare Part B members will pay an average monthly premium of $164.90 in 2023, down $5.20 from 2022’s $170.10; however, those at a higher tax rate may end up paying more.
If you filed a return as an individual in 2021 and your income was greater than $88,000 but less than $111,000, then you were responsible for paying a total of $207.90. If your annual income was between $111,000 and $138,000, your payment was $297. The price for coverage above $500,000 was $504.90.
In 2022, a single filer paid $238.10 per month if their income was over $91,000 and under $114,000. The $340.20 rate applied to those with incomes between $114,000 and $142,000. The cost of the premium increased to $442.30 if the income fell between $142,000 and $170,000.
The premium increased to $544.30 for those with incomes ranging from $170,000 to $500,000. And if it was more than $500,000, the premium jumped up to $578.
You can make a case to the Social Security Administration for a reduced premium if there has been a recent decline in your income. It’s possible the Social Security Administration is receiving out-of-date information from the IRS.
Beneficiaries are also shielded from having their current year’s benefits reduced due to a rise in Part B premiums thanks to the hold harmless provision. To be eligible, you must meet the following conditions:
- You are eligible for Social Security benefits in the months of November and December of this year.
- Your Medicare Part B premium was or will be withheld from your Social Security benefits between the months of November and January.
- You are not currently subject to higher premiums for Part B as a result of being eligible for the Income-Related Monthly Adjustment Amount (IRMAA);
- Your Cost-of-living adjustment (COLA) does not go far enough to pay the higher premium.
Hold harmless does not apply to individuals in the following situations:
- You just became eligible for Medicare in the year 2023. Your short duration of Medicare Part B enrollment disqualifies you from protection under the hold harmless provision.
- IRMAA, or income-related monthly adjustment amount, applies to your case.
- You have been enrolled in a Medicare Savings Program, also known as an MSP. The MSP ought to keep paying the full amount of your Part B premium.
- You signed up for a Medicare Savings Program; however, you were removed from the program either due to an increase in your income or due to the fact that you were unable to recertify.
When Does Social Security Disability End?
Your disability benefits from Social Security should never be terminated without a valid reason; however, there are a number of circumstances that could result in the termination of your benefits.
People may experience a great deal of anxiety during this time, particularly if they have worked diligently and waited for what seems like an endless amount of time in order to receive the benefits in the first place.
Any significant change in your disability status or other income will be reflected in a corresponding change in your benefits. In most cases, it is not difficult to expect these kinds of decisions, even though the change may involve anything from a slight reduction to a complete cessation of benefits.
A number of factors, including the following, could cause your benefits to be discontinued:
Your income has reached or surpassed a certain threshold amount. It is possible to receive SSDI payments and work at the same time, but only if your earnings are below the substantial gainful activity (SGA) limit, which is now $1470 per month for non-blind workers (2023 data).
If you earn more than the SGA threshold, your benefits will decrease over time. Long-term employment exceeding the SGA may result in the loss of Social Security Disability Insurance benefits.
You have reached retirement age. When you reach retirement age, you will begin receiving retirement benefits instead of disability payments.
Your health has started to improve. The Social Security Administration may reevaluate your disability status if they find that your health has improved.
There has been a change in your living arrangements. It’s possible that your eligibility for benefits will end if you move into a nursing home, enter prison, or enter another type of institutional setting.
Conclusion
Your SSDI benefits may be cut for a variety of reasons. It always helps to know what to expect when it comes to your SSDI benefits, especially if you rely on them as your sole source of income.
