Entrepreneurship is a path that offers individuals the opportunity to pursue their passions, create their schedules, and enjoy the benefits of financial independence. For individuals with disabilities, self-employment can be a powerful avenue for empowerment and personal and professional success.
However, if you're receiving disability benefits, being self-employed can remove these benefits. This blog will explore the relationship between disability and self-employment, understand the eligibility criteria for disability benefits, examine tax responsibilities, and answer some commonly asked questions.
Understanding Disability and Self-Employment
The Social Security Administration (SSA) provides a definition of disability that serves as the basis for determining eligibility for disability benefits. Disabled individuals cannot perform a substantial gainful activity (SGA) because of medical conditions. It is expected to last at least one year or result in death.
Various types of disabilities qualify individuals for disability benefits, including physical disabilities, mental health conditions, and chronic illnesses. To determine eligibility, applicants must provide medical documentation supporting their disability claim.
The application process for disability benefits involves the following:
- Applying to the SSA.
- Providing detailed information about the disability.
- Medical records.
- Work history.
It's important to carefully follow the instructions and provide all the crucial documentation to ensure a smooth application process.
Here are some key points regarding disability and Social Security benefits in the United States:
- According to the U.S. Census Bureau's American Community Survey, in 2019, approximately 61 million individuals in the United States reported having a disability, representing around 26% of the total population.
- The most common types of disabilities reported are mobility disabilities, followed by cognitive disabilities, hearing disabilities, and vision disabilities.
- Disability prevalence increases with age, with older adults being more likely to have a disability than younger age groups.
- The Centers for Disease Control and Prevention (CDC) estimates that around 1 in 4 U.S. adults have a disability that affects their daily activities.
Social Security Disability Insurance (SSDI)
- SSDI is a federal program administered by the Social Security Administration (SSA) that provides income support to individuals with disabilities who are unable to work.
- To qualify for SSDI, applicants must have a qualifying disability and meet the program's work credit requirements.
- As of September 2021, the average monthly SSDI benefit amount was around $1,280. Benefit amounts can vary based on an individual's work history and earnings.
Supplemental Security Income (SSI)
- SSI is another federal program administered by the SSA that provides financial assistance to low-income individuals with disabilities, as well as elderly individuals.
- To qualify for SSI, applicants must meet certain income and resource limits and have a disability.
- As of September 2021, an individual's maximum federal SSI benefit amount was $794 per month. Some states supplement the federal benefit with additional funds.
Self-Employment and Disability Benefits Eligibility
Navigating Self-Employment and Disability Benefits
When individuals with disabilities express their desire to venture into the realm of self-employment, a common concern arises regarding the potential impact on their eligibility for disability benefits. To address this concern, the Social Security Administration (SSA) diligently assesses whether engaging in self-employment qualifies as substantial gainful activity (SGA), considering factors such as the expended time and effort, income generated, and nature of the work performed.
Comprehensive Evaluation through SSA Tests
The SSA employs a series of comprehensive tests to ascertain whether self-employment meets the criteria for substantial gainful activity (SGA). These tests serve as vital tools in discerning the classification of self-employment activities and include:
- Significant Services and Substantial Income Test: This test evaluates the level of services rendered and the income generated from self-employment to determine if they meet the SGA threshold.
- Comparability Test: By comparing the nature of self-employment work with similar jobs in the general marketplace, the SSA assesses whether it can be considered substantial gainful activity.
- Countable Income Test: The SSA examines the countable income derived from self-employment and weighs it against the SGA threshold to determine its impact on disability benefits.
Seeking Expert Guidance for Optimal Outcome
It is important to note that if the income derived from self-employment surpasses a predetermined threshold, it may be deemed substantial gainful activity, potentially affecting disability benefits. In light of this, it is imperative to seek guidance from a disability attorney or advocate well-versed in the intricacies of self-employment and its interaction with disability benefits. These professionals possess the expertise necessary to navigate the complexities of this unique situation and ensure the most favorable outcome.
Flexibility and Support for Self-Employed Individuals with Disabilities
Fortunately, special rules have been established to cater specifically to individuals with disabilities who engage in self-employment. These rules are designed to provide flexibility and allow entrepreneurs to receive disability benefits while actively pursuing their entrepreneurial endeavors. This enables individuals to strike a harmonious balance between their aspirations for self-employment and their need for financial support.
The Trial Work Period (TWP)
For example, the Social Security Administration offers a program known as the Trial Work Period (TWP). Through the TWP, individuals can embark on their self-employment journey without jeopardizing their disability benefits. Within this program, a span of nine months is provided, during which individuals can earn income from self-employment that exceeds the SGA amount without experiencing a reduction in their disability benefits. This program offers a valuable opportunity for individuals to explore and establish their self-employment ventures while maintaining the necessary financial support.
By leveraging these provisions and seeking guidance from professionals experienced in disability benefits and self-employment, individuals with disabilities can confidently pursue their entrepreneurial aspirations. They can forge their path to self-employment while simultaneously benefiting from the invaluable support of disability benefits.
Self-Employment Tax Responsibilities
Like any business owner, individuals with disabilities who are self-employed must fulfill their tax responsibilities. Self-employment taxes typically include Social Security and Medicare taxes, calculated based on the net income from self-employment.
However, individuals with disabilities who are self-employed may be eligible for certain tax benefits and deductions. It's vital to consult with a tax professional or accountant who works with entrepreneurs with disabilities to ensure compliance with tax regulations and take advantage of available deductions.
Entrepreneurs with disabilities often incur additional expenses related to their business operations. These uninsured business expenses can be deducted from the net income when calculating eligibility for Social Security Disability Insurance (SSDI) benefits.
Examples of allowable business expenses and deductions include equipment and supplies necessary for the business, marketing, and advertising costs, professional fees, and travel expenses directly related to the business. Keeping detailed records and working with a financial advisor can help ensure accurate reporting of these expenses and maximize benefits.
Frequently Asked Questions
Can you get disability perks if you have self-employment income?
Yes, it is possible to receive disability benefits while earning income from self-employment. The key factor is whether the income from self-employment is considered substantial gainful activity (SGA) by the Social Security Administration (SSA).
If the income exceeds the threshold set by the SSA, it may impact the eligibility for disability benefits. However, special rules and programs are available to provide flexibility for individuals with disabilities who are self-employed.
How long do I have to work to qualify for Social Security benefits?
To qualify for Social Security disability benefits, an individual must work and pay Social Security taxes for a specified period. The SSA uses a system of work credits to determine eligibility. A person's age during disability determines the required work credits.
Younger individuals generally require fewer work credits compared to older individuals. It's important to review the specific requirements and consult with the SSA or a disability attorney to determine eligibility based on work history.
How Much Will I Get in Benefits If I'm Self-Employed?
The amount of disability benefits received by self-employed individuals depends on various factors, including their average indexed monthly earnings (AIME) and the duration of their work history. The SSA uses a formula to calculate the primary insurance amount (PIA), which determines the monthly benefit amount.
It's worth noting that if individuals still engage in substantial gainful activity (SGA) and earn income from self-employment, their benefit amount may be reduced or suspended. Consulting with the SSA or a disability attorney can provide a more accurate estimate of potential benefits.
Entrepreneurship has the potential to empower individuals with disabilities by allowing them to pursue their passions, create flexible work arrangements, and achieve financial independence. Understanding the relationship between disability and self-employment is crucial for navigating the complexities of disability benefits eligibility and maximizing opportunities while maintaining financial stability.
With the right knowledge, support, and determination, individuals with disabilities can confidently embark on their entrepreneurial journey and realize their dreams.
If you're an entrepreneur with a disability, don't let it hold you back. Learn about the opportunities available and take the necessary steps to start your own business.
Learn about How to Report Self-Employment Income to Social Security in this blog.