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SSDI and Self-Employment

SSDI and Self-Employment

If you are the self-employed owner of a small business, you still pay into Social Security. You must pay both the employee and employer portions of Social Security taxes, but instead of withholding Social Security taxes from each paycheck, you will pay it all when you file your annual federal income tax return.

You may wonder if being self-employed makes you ineligible for Social Security Disability Insurance (SSDI) benefits. Strictly speaking, you may still be eligible if you are a small business owner, but the rules to determine eligibility in this scenario are complicated.

Generally, if Social Security Administration (SSA) arrives at the conclusion that the work you put into your business amounts to substantial gainful activity (SGA), you may not qualify for benefits or may lose existing benefits. The SGA threshold changes every year, and in 2021, it is income exceeding $1,310 per month for a non-blind individual and $2,190 per month for a blind individual. Work that you put into your business could include doing contracting or consulting work, providing services, or being a landlord. To determine whether you qualify for SSDI benefits if you are self-employed, SSA will use either the countable income test or the three tests.

SSA will use the countable income test to determine if your work is SGA if you have received SSDI benefits for over 24 months and you begin to do freelance work or start running a small business; if it is, you will no longer be considered disabled. Countable income is the portion of your salary that you earned based on your own productivity.

If your countable income exceeds SGA, you will be ineligible for SSDI benefits, unless you can show that you are not providing significant services to your business. Significant services depend on whether you own a business on your own or whether you run a business with at least one other person. If you are the only owner, your services will be considered significant because, without you, the business would not exist. On the other hand, if you own a business with another individual, your services will be considered significant if you provide over 45 hours per month in management services, or you provide over half the total time needed to manage the business.

SSA uses the three tests to determine whether your work is SGA if you are self-employed and applying for SSDI benefits for the first time or have been receiving benefits for less than 24 months. They are: 1) significant services and substantial income test; 2) comparability test; and 3) worth of work test. If any of these tests show that your work is SGA, you will be ineligible for SSDI benefits.

Your work is SGA if you provide significant services to and you receive substantial income from your business. In this case, income is considered substantial if your countable income averages more than $1,310 per month, or it is less than that but the livelihood you get from your business: 1) is comparable to other self-employed individuals in your community who are not disabled and run the same kind of business you do; or 2) it is comparable to what it was before you became disabled.

Under the comparability test, your work is SGA if the work that you do in your business is comparable to what a non-disabled individual in your community does who runs the same kind of business. SSA will use many factors to make the comparison, including your skills, your duties, your responsibilities, your efficiency, and the number of hours you work.

Lastly, your work is SGA under the worth of work test if what you do for your business is: 1) clearly worth more than $1,310 per month when compared to what it would cost you to pay someone else to perform your duties; or 2) clearly worth more than $1,310 per month in terms of the value you bring to the business.